Cost accounting systems are meant for the purposes of measuring, recording and reporting individual product costs. The usefulness of each accounting system is ideal for unique situations and types of work.
Job order costing
This system of costing is usually founded on the main objective of computing the total cost of a specific job. It gives the total costs incurred to complete a job order not costs incurred over a period. The method is useful where the cost of each job is different from the costs of another job and has to be calculated and evaluated on its own. (Hansen & Mowen, 2000). The method is applied where the costs are accumulated to individual units or unit batches. For example in the construction of a wooden chair, the cost of wood, labor, and nails would be used to determine the best selling price or evaluate the business’ profitability on that unit.
Process costing
This method is applied to a lengthy production process that involves products that are different from each other. It is used when and where production involves huge volumes of similar products. The method accumulates costs over specific time periods, say monthly or weekly. On these specific periods of time, the costs are assigned to individual processes or departments. For example, in a refinery plant, to produce 10 million gallons of oil, we would need crude oil, labor, a refinery, and power to run the plant. The costs accumulated over the process are then divided to individual units. It’s useful because the costs are scattered over a process and therefore it’s the only best way to ensure that costs are assigned to all products. (Hansen & Mowen, 2000)
Hybrid system
As the name suggests, the method inculcates the features of both the job order and process costing. It’s applicable where a production function involves huge volumes of output but the final products are customized before release to the market.
References
Hansen, D. & Mowen, M. (2000). Management accounting. Cincinnati: South-Western College
Pub.
