Job order costing and process order costing are two different managerial accounting procedures that are used by various companies around the world. Many companies prefer using job order costing, while other companies choose to use process costing. According to Heisinger and Hoyle (2014), job order costing is used by companies which produce a unique product, whereas process order costing is used by companies that produce goods and service in bulk. These good and services pass through a series of processes before the final product is obtained.
It is not that one type of method is more prevalent than other, but it is the type of industry and the type of goods that the company is producing leads to the selection of the method that the company is going to use. For example, the companies producing in bulk such as Lay’s, Mars Chocolate, and Hershey’s etc. use process costing. The reason behind this is the fact that their products have to be produced in bulk and they go through series of processes before the final product is obtained. Process costing is a method which is used by the Fast Moving Consumer Goods (FMCG Companies).
Similarly, the companies like Toyota, Honda, and Mercedes use the system of job order costing. They produce automobiles when the order arrives and later the order is accounted for using the job order costing system. In other words, we can say that the companies which produce in bulk use process costing, whereas the companies which produce one or two units at a time use job order costing.
Boeing is the largest airplane manufacturer. All its jobs are unique and airlines around the world ask unique to develop or manufacture a customized plane depending on their requirements. Direct material for each plane can be attributed to each job depending on the number of seats, navigation system, and other facilities that its customers require. Similarly, labor costs can also be attributed to each jetliner and manufacturing overheads can be attributed to each plane depending on the production capacity and number of units produced each month. (Boeing.com)
Process Costing is usually used by large manufacturers of garments such as Wal Mart. All the fabric and garment passes through three or four different processes such as fabric knitting, dyeing, finishing and logistics. Cost of each process is calculated separately for control and management purposes. Later, this information is used for pricing the fabric and deciding on the retail price of the product. (Corporate.walmart.com)
References:
Heisinger, K., & Hoyle, J. (2014). Managerial Accounting 1.0 | Flat World Education. Flat
World Knowledge. Retrieved 29 October 2014, from
http://catalog.flatworldknowledge.com/bookhub/reader/4402?e=heisinger_1.0-ch04_s01
Boeing.com,. 'Boeing: The Boeing Company'. N.p., 2014. Web. 30 Oct. 2014.
Corporate.walmart.com,. 'In-Depth Factory Assessments'. N.p., 2014. Web. 30 Oct. 2014.
