Job Costing and Process Costing Methods in Production

STUDENT NAME
STUDENT I.D
YEAR/SEMESTER
COURSE
SUBJECT NAME
LECTURER

Introduction
There are two costing methods or systems commonly used in production, and these include Job
costing and Process costing systems.
Job costing method involves the accumulation of data about the costs identified with a specific
production or service. This cost data is useful in determining correct and accurate price quote
that enable the company to make a reasonable profit (Vanderbeck,2012). The cost data is also
helpful for assigning inventorial costs to the manufactured goods. Job costing focus on the three
types of data;
 Direct material cost – Job costing should track total material cost used during the job.
Please note, the consideration here must be the only materials using during the task.
 Direct labor – the process must track the cost of associated work used. Only direct labor
associated with the job can be recorded
 Overheads- This system assigns overheads cost to cost pools, and at the end of the
accounting period, amounts in each cost pool are attached to the different job based on
some allocation methodology. Job costing tailored to the requirements of the customer or
consumer.
Note, Job costing is preferred when a batch is significantly different from the other quantities
(Drury, 2013)
On the other hand, process costing method is preferably used where there is mass production of
the similar products, that is, individual unit cost of output cannot be separated or differentiated
from each other for instance, oil refining, food production, chemical processing among others.
Under this system, the cost data is recorded over the fixed period for each department, summed
together and then allocated to the number of units produced during that time on consistent basis
contrast Job costing where cost is assigned to specific product unit (Turner, 2014).
Note, where the process is costing is associated with the mass production and customized
element, and then the hybrid costing method is used. Process costing is categorized into three;
Weighted average cost – This assumes the total value whether from the preceding period and the
current period are summed together and assigned to the product unit.

Standard cost – is calculated similar to weighted average price but the standard value is assigned
to unit products rather than actual cost, then the actual cost is compared to the standard cost, and
the difference is reported as variance in a variance account.
First –In– First – Out (FIFO) –This system creates a layer of cost, that is, the previous layer and
the current layer. Its valuation is based on the assumption that goods are used or sold in
chronological order.
a) Costing Method used by Australian Dairy Producers
In our case of Australian dairy producers, the costing system may depend on the stages of milk
production, for instance where the production is primary then, the producer can use job costing
method, but where the milk production involves a lot of stages, then the producer can employ
process costing method.
I can boldly comment Australian dairy producers use both costing systems in producing milk
because it involves various stages and some independently like raring dairy cows, logistics and
labor among others. Refer to Norco Co-operative Society, our company of reference, the expense
data and the cash flow information shows different activities with some consolidated, and with
no clear insight departmental relevant cost (Norco annual report, 2010).
Where final milk product is to process, it will have to undergo various stages such as storage,
cleaning and screaming, homogenization, fat standardization, heat treatment, chilling,
intermediate storage and finally filling and packaging. Since all this, is done by different
department, then the best costing system is the process costing.
Additionally, at the initial stages of the production specifically from the farmers, they can use job
costing system since the production methods are very dependent.
b) Product cost outline – step by step in the production of a Batch – using process
costing system
Please note, the data provided below is hypothetical, and not real data for the purposes of our
calculation. The financial data of the most production companies in Australia, including Norco