What types of manufacturers can use job order costing?
The general cost accumulation modelIn general, companies match the flow of costs to the physical flow of products through the production process. They place materials received from suppliers in the materials storeroom and record the cost of those materials when purchasing them to raw materials inventory. As they are needed for production, the materials move from the materials storeroom (raw materials inventory) to the production departments with their cost as shown below. Show  During production, the materials processed by workers and machines become partially manufactured products. At any time during production, these partially manufactured products are collectively known as work in process (or goods in process). For example, if accountants compute the inventory when the company has partially finished products at the end of the year, this inventory is work in process inventory. Completed products are finished goods. When the products are completed and transferred to the finished goods storeroom, the company removes their costs from Work in Process Inventory and assigns them to Finished Goods Inventory. As the goods are sold, the company transfers related costs from Finished Goods Inventory to Cost of Goods Sold. The accounting flow of costs follows the physical flow of the manufacturing process in most companies. In this chapter and the next, we assume costs follow the physical flow of products.In discussing product costing, we described how accountants and managers assign costs to products. Recall that products can be either goods or services, so this discussion applies to service and merchandising companies as well as to manufacturing companies. What kinds of companies would use job costing? The chart below shows how various companies choose different accounting systems, depending on their products. First, companies producing individual, unique products known as jobs use job costing (also called job order costing). Companies such as construction companies and consulting firms, produce jobs and use job costing.
Second, some companies, like furniture manufacturers, produce batches of products. They produce all of the components of a single product (e.g. coffee tables) in one batch. They would then produce the components of another product (e.g. dining room sets) in a new batch. (Some university food service companies prepare meals this way.) Companies such as these use job costing methods to accumulate the cost of each batch. The last two types of production in use process costing methods described in another chapter, so we give just a brief overview here. Repetitive manufacturing lends itself to the use of automated equipment that minimizes the amount of manual material handling. Automobile assembly plants, bicycle assembly plants, and computer assembly plants use repetitive manufacturing. Continuous flow processing is the opposite of job shops. Companies using this process continuously mass-produce a single, homogeneous product. Companies might use process cost systems in manufacturing paint, grinding flour, and refining oil. Which manufacturer is most likely to use a job order accounting system?A health care clinic would most likely use a job-order costing system as it offers unique and specialized services to its clients. Thus, it accumulates costs to a specific unit or job.
What industries use job costing?Types of business that use job costing system
Generally, the application of job costing method is followed in industries such as printing press, automobile garage, repair workshops, shipbuilding, foundry, and other similar manufacturing units, which manufactures according to customer's specific requirements.
Which type of company Cannot Use job order costing?Firms that Produce Different Products Each Period
This means that the product is custom built as per the requirements of the customers. This makes job order costing difficult since in a company that manufactures standard products, the production can be known in advance and overheads can be allocated amongst products.
Which types of companies would use job costing rather than process costing Why?Industries that produce unique or custom orders for individual customers, including retail companies and hospitals, typically use job order costing. Industries that produce large amounts of a single product or similar products, such as manufacturers of a single product, typically use process costing.
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