Costing Systems Discussion
Cost effectiveness is considered as a relation between financial inputs and the desired result. For corporations to be prosperous, it is crucial that they efficiently measure and assess their expenses. To do this, companies use cost accounting systems. Drury (2018) defines the two most regularly integrated cost accounting structures as job costing and process costing. Both costing approaches are utilized in assigning material, labor, and manufacturing overhead expenses to products and offering a means for computing unit product expenses. When selecting a costing structure, a corporation should choose a technique that best complements the production stream in business processes. Therefore, the costs precisely correlate with the revenues created.
Job Costing Systems
Labro (2019) illustrates how job costing is integrated when a business generates many exclusive jobs. Since every company contains diverse production needs, costs are accumulated on a personal job basis. Moreover, Labro (2019) defines how a job cost sheet is utilized for every job to document the production costs, which comprises of direct material, labor, and overhead expenses. This form of accounting costing system efficiently lets managers to evaluate their paychecks per job, which helps them in evaluating the productivity of a specific job compared to another.
An example of a company that incorporates this system is the Huntington Ingalls Industries. This is a renowned ship construction firm in the United States. HII assembles various characteristic submarines and aircraft transporters for the United States Navy. During manufacturing, HII allocates every submarine and aircraft carrier a hull digit, used in differentiating and allocating charges in each spectrums of the supply chain and production segment. Another large industry sector that integrates the system is Ryan Homes Construction Company. Every home built by the company has diverse landscaping appearances and permit needs. Moreover, every consumer can select custom aspects for their home, which similarly makes the prices of every home exclusive.
Process Costing Systems
Process costing is incorporated when a corporation produces similar merchandises on a constant basis. Labro (2019) illustrates how every product factory-made is identical, so if cost accounting was integrated the cost computed would constantly similar. To compute process costing, a corporation allocates cost to company departments founded on the average amount of products produced each day (Labro. 2019). Process costing is principally integrated in production set-ups and industries that transform raw materials into standardized merchandises. Numerous firms use process costing. From a commercial viewpoint, corporations such as Anheuser Busch, Pepsi-Cola, Canon, and Kraft Foods incorporate process-costing system to compute product cost. When these corporations repeatedly produce their standardized merchandises, they flow through some assembly stages and every stage has a particular cost amount linked to the tasks. By integrating the process costing technique, the corporations can assess every process of production to guarantee efficiency and productivity. Small companies similarly incorporate process costing. For instance, a local brewery known as St. George Brewing Corporation regularly manufactures its own Ales and Lagers and a peanut processing corporation known as Hubbard Peanut Company manufactures a variety of peanuts.
Job order costing and process costing are both efficient techniques for businesses to calculate product costs. Job costing allows corporations to evaluate cost on a discrete merchandise basis while process costing lets firms to assess product cost by assigning it by department procedures. Process costing efficiently lets administrators to compare corporation and departmental performances over a specified duration. Job costing presents administrators with the capacity to evaluate individual performance founded on cost efficacy, capability and product revenue. Comprehending and using the appropriate accounting costing structures is vital to the success of each corporation. If properly used, the costing structures help companies in competently computing and assessing the product costs.