Debate Between Job Order Costing And Process Costing

4776 words - 19 pages

Debate between Job Order Costing and Process Costing

Table of Content

1. Job Order Costing (JOC) 2
2. Process Costing (PC) 3
1. Last-In-First-Out (LIFO) 4
2. First-In-First-Out (FIFO) 5
3. Comparison between LIFO and FIFO 6
Case 1 – Law Firm 7
Case 2 – Furniture Manufacturing Industry 7
Case 3 – Bakery 8


This report to distinguish between and identify companies that may use the “Job Order Costing” and “Process Costing” which are the major types of costing systems that used in manufacturing and service company. Both of the costing methods are widely used to track costs and will be selected upon the level of details needed and the desires of management. Details will be described in Part 2.

Other than the costing systems, we should have good inventory control system as well. Inventory may consist of finished goods, work-in-process, raw materials, goods for resale and spare parts that held by the company. It is important to have a control system to the inventory and record down the value of inventory as to ensure the availability of inventory items and prevent from excessive of inventory, which may lead the company out of cash flow. A perpetual system should be maintained on continuous basis to record down the inventory changes and periodic system will be updated periodically.

Last-in-first-out (LIFO) and First-in-first-out (FIFO) are two different ways of accounting methods that set a value to the inventory and calculating the profit, manage and record down the inventory and financial transactions that involved in a company between cash and the inventory including produced goods, materials, components, etc. LIFO and FIFO can have significant effect to the company’s profit and lost statements and choice between them will depend on the frequency of move of the inventory.

Details and effects on using LIFO and FIFO will be described in Part 3.


1. Job Order Costing (JOC)

JOC is a fundamental managerial accounting methodology and is used where the companies offers different products or services, special orders or when the products or services made is unique and heterogeneous. The products or services will be offered in lower production volume and higher flexibility. It attempts to measure individual costs of productions of each job. The industries in which JOC is widely used in, for example, special order printing, constructions, hospitals, law firms and movie studios.

The costs in JOC are accumulated by job and the flow of costs of in JOC is traced by job, those direct materials and direct labors will be recorded and tracked at their actual values until the job is completed. The overhead will be applied by using a predetermined rate based or an activity based costing cost driver on the direct labor...

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