Please, write a main discussion post about the below topic and respond to the two classmates posts in the file attached. Thank you.
Topic:
Many companies need to use both job costing and process costing. Discuss why this may be the case with appropriate examples.
Instructions for main post (Around 200 words) Please, write a main discussion post about the below topic: Topic: Many companies need to use both job costing and process costing. Discuss why this may be the case with appropriate examples. (Citations only needed for main post) Instructions for the two classmate responses (around 150 words each) Please, respond to the below two classmate main posts. (Please, the responses need to be a discussion, not an evaluation. You can agree with them and add/comment about their response.) Thank you Classmate post #1: Debbie Schlosser According to Datar and Rajan (2014), a job-costing system pertains to a system where the cost object is a distinct unit or multiple units of a product or service. While the process-costing system is a system in which the cost object is masses of identical or similar units of product or services. When making products or working on specific jobs, there are costs such as direct labor, materials, and overhead costs that can be allocated and are distinct for that product or service. These costs can clearly be allocated to the individual product or service. For other jobs or products where the costs are not distinct, then management has to come up with appropriate allocation methods to assign the costs to the products or services. For example, “process-costing systems divide the total costs of producing an identical or similar product by the total number of units produced to obtain a per unit cost (Datar and Rajan, p. 117). Many companies will use what is known as a hybrid system, when they need to use both the job and process costing systems. “The key issue in choosing to use a hybrid system is whether certain parts of the production process are more easily accounted for under a different system than the one used by the bulk of the manufacturing operation. Many companies do not realize that they are using a hybrid costing system - they have simply adapted their cost accounting systems to the operational requirements of their business models” (www.accountingtools.com, (2018). Even though these kind of costing systems have to do with manufacturing, where a product may be originally produced in mass quantities (ie: process costing); they may have additional costs in the finishing processes that make them unique and only incur certain materials, labor, or overhead that are direct or distinct for that product (ie: job costing). My example has to do with medical services or case (ie: job) costing. These systems are actually used in the medical environment as well. When doctors perform cases, for examples surgeries, they use particular instruments and/or medical supplies that are used only in that case (ie: job), so those cost are allocated to that case directly. Then they have support staff that help to run the center like secretaries, nurses, patient care, and other technicians that work on all of the cases. These costs or salaries would be allocated over the number of cases or become a general cost to center basis. Classmate post # 2: Kari Grippo A process costing system is utilized by companies that produce “similar or identical units of product in batches employing a consistent process” (Lumen Learning, 2019). Examples of a companies which uses process costing includes Chevron Corporation in their manufacturing of petroleum products, the Wrigley Company in making their chewing gum, as well as Pittsburgh Paint in their making of paints. A job costing system, however, is utilized by companies that produce “unique products or jobs” (Lumen Learning, 2019). With this being said, a job costing system is implemented by firms such as Boeing for making airplanes, Lockheed Martin in their development of advanced technology systems, and Deloitte & Touche for accounting. The three inventory accounts- raw materials, work-in-process, and finished goods are used to record the product cost information for both process costing and job costing system. Many work-on-process inventory accounts are used in process costing systems in order to track the flow of the product costs through each production department, so each department will have its own work-in-process account. With job costing, however, there will only be one work-in-process inventory account as job cost sheets track the costs assigned to each job. There are instances, however, where companies may need to use both job costing and process costing in a hybrid costing system. Hybrid costing is a costing accounting system which includes features of both a job costing system and a process costing system. A hybrid costing system is useful when a production facility handles groups of products in batches and charges the cost of materials to those batches (like with job costing), while also accumulating labor and overhead costs at the departmental center level and allocating those costs at the individual unit level (like with process costing) (Accounting Tools, 2018). Hybrid costing is commonly used in cases where there is an identical processing of a baseline product, in addition to individual modifications that are made beyond the baseline level of processing. This situation usually arises when identical products are manufactured until they reach the painting process, for example, after which each product would receive a different coating, with each coat having a different cost. An example of a company which uses a mix of both job costing as well as hybrid costing could be that of MayTag in it production of a variety of refrigerators. All of the refrigerators require essentially the same type of processing, but differ in the amounts of needed materials. MayTag can use job costing to assign the varying amounts of materials to each refrigerator, while using process costing to allocate the costs of labor and overhead equally across all of the refrigerators produced. Using only job costing can be challenging as it requires diligent tracking of all materials and labor used during the job (Ingram, 2019). For example, a construction contractor would have to keep track of all of the wood, nails, screws, electrical fixtures, paint, and all other materials used for the job as well as tracking workers’ lunch breaks and hours worked. Using only process costing also has disadvantages such as cost errors which could develop since process costing does not use direct allocation to apply business costs to individual goods (Vitez, 2019). Because of these reasons, an organization may choose to use hybrid costing in order to derive the benefits and advantages of both process and job costing systems. A company’s choice to use a mix of job costing and process costing is usually based on the decision of what is most efficient and effective for the company, given the nature of their business and production processes in place.