Systems Design:

Process Costing

Chapter Four

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4-2
Similarities Between Job-Order and Process
Costing

Both
Both systems
systems assign
assign material,
material, labor
labor and
overhead
overhead costs
costs to
to products
products and
and they
they provide
provide aa
mechanism
mechanism for
for computing
computing unit
unit product
product cost.
cost.
Both
Both systems
systems use
use the
the same
same manufacturing
manufacturing
accounts,
accounts, including
including Manufacturing
Manufacturing Overhead,
Raw
Raw Materials,
Materials, Work
Work inin Process,
Process, and
and Finished
Finished
Goods.
Goods.
The
The flow
flow of
of costs
costs through the manufacturing
accounts
accounts is
is basically
basically the same in both
both systems.
systems.

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 4-3
Differences Between Job-Order and Process
Costing

Process
Process costing
costing isis used
used when
when aa single
single product
product is
is
produced
produced on on aa continuing
continuing basis
basis or
or for
for aa long
long period
period of
of
time.
time. Job-order
Job-order costing
costing isis used
used when
when many
many different
different
jobs
jobs are
are worked
worked on on each
each period.
period.
Process
Process costing
costing systems
systems accumulate
accumulate costs
costs by
by
department.
department. Job-order
Job-order costing
costing systems
systems accumulated
accumulated
costs
costs by
by individual
individual jobs.
jobs.
Process
Process costing
costing systems
systems compute
compute unit
unit costs
costs by
by
department.
department. Job-order
Job-order costing
costing systems
systems compute
compute unit
unit
costs
costs by
by job
job on
on the
the job
job cost
cost sheet.
sheet.

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4-4

Quick Check

Process costing is used for products that are:

a. Different and produced continuously.
b. Similar and produced continuously.
c. Individual units produced to customer
specifications.
d. Purchased from vendors.

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4-5

Processing Departments

Any unit in an organization where materials, labor

or overhead are added to the product.
The activities performed in a processing
department are performed uniformly on all
units of production. Furthermore, the output of
a processing department must be
homogeneous.

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4-6
Comparing Job-Order
and Process Costing

Direct
Direct
Materials
Materials

Work in Finished
Finished
Direct
Direct Labor
Labor
Process Goods
Goods

Manufacturing
Manufacturing Cost
Cost of
of
Overhead
Overhead Goods
Goods
Sold
Sold
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4-7
Comparing Job-Order
and Process Costing

Costs
Costs are
are traced
traced and
and
applied
applied to
to individual
individual
Direct
Direct jobs
jobs in
in aa job-order
job-order
Materials
Materials cost
cost system.
system.

Finished
Finished
Direct
Direct Labor
Labor Jobs
Jobs Goods
Goods

Manufacturing
Manufacturing Cost
Cost of
of
Overhead
Overhead Goods
Goods
Sold
Sold
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4-8
Comparing Job-Order
and Process Costing

Costs
Costs areare traced
traced and
and
applied
applied toto departments
departments
Direct
Direct in
in aa process
process cost
cost
Materials
Materials system.
system.

Processing
Processing Finished
Finished
Direct
Direct Labor
Labor
Department
Department Goods
Goods

Manufacturing
Manufacturing Cost
Cost of
of
Overhead
Overhead Goods
Goods
Sold
Sold
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4-9

End of Chapter 4

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