158. Define and discuss the two main types of cost accounting systems for manufacturing operations. What are their similarities and differences?
The two main cost accounting systems are job order cost and process cost.
A job order cost system provides product costs for each quantity of product that is manufactured. Each quantity of product that is produced is called a job. This type of system is used by companies that manufacture custom products or batches of similar products.
A process cost system provides product costs for each manufacturing department or process. Process cost systems are used by companies that manufacture products that are indistinguishable from each other and manufactured using a continuous process.
They are similar in that both systems are widely used and a company may use both -- job order for some products and process costing for others.
159. Discuss how job order cost information is used in decision making. What are some possible reasons that actual cost of materials would exceed expected costs for a job?
Since a job order cost system provides product costs for each quantity of product that is manufactured, total and unit product costs can be compared to similar jobs or expected costs. Thus, a job order cost system can be used by managers for cost evaluation and control.
Possible reasons that actual material costs would exceed expected cost include: poorly trained employees, poor quality materials, faulty equipment or incorrect instructions.
160. Discuss the use of job order costing for professional services businesses. What are the similarities and differences between service and manufacturing business job order costing?
Professional service industries -- attorneys, physicians, advertising agencies, etc. - may use job order cost accounting systems. In such cases, clients are considered jobs.
Like manufacturers, direct labor and overhead costs for service companies are accumulated in work in process accounts. Unlike manufacturers, material cost for service companies are usually insignificant and treated as overhead. When a job is completed it is transferred to Cost of Services which is similar to Cost of Goods Sold. Service companies do not use Finished Goods accounts.