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EEC Job Order Costing vs Process Costing

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EEC has introduced a new 1.5 gigabyte (GB) computer memory chip.

Should EEC use a job-order costing system, which is a costing system where costs are collected and assigned to units of production for each individual job, or a process costing system, which is a costing system that accumulates production costs by process or department for a given period of time, to report the costs of this new product?
How are the systems different?
Describe how the selected system would work to track the costs of the product.
Identify the cost driver, and explain the process of tracking the costs.
Provide examples of products that EEC might offer for which a job-order costing system would be appropriate.
Provide examples of products that EEC might offer for which a process costing system would be appropriate.

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Your discussion is 598 words and should give you a start with the main concepts and guidance about how these might apply to a chip-maker.

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•Should EEC use a job-order costing system, which is a costing system where costs are collected and assigned to units of production for each individual job, or a process costing system, which is a costing system that accumulates production costs by process or department for a given period of time, to report the costs of this new product?

Job-order costing systems assign costs to individual jobs and is best for when jobs use different mateials, different labor and/or different amounts of overhead resources. Think making movies. Each movie uses different actors, different props and different amounts of travel and setup. So, you would assign costs to each movie, not divide the total cost evenly across all movies. For oatmeal, you would not try to assign costs to each batch of oatmeal because they are all the same.

So, for this firm, are the products all the same or different? For ...

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Carol Sargent, PhD
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  • MSc, University of Virginia
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