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Job Order and Process Costing

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EEC has introduced a new 1.5GB computer memory chip.

Should EEC use a job order costing system or a process costing system to report the costs of this new product? How are the two 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. Also, provide examples of products that EEC might offer for which a process costing system would be appropriate.

Objective: Contrast job order and process costing and explain business situations in which each would be used.

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The response addresses the queries posted in 2132 words with references.

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The response addresses the queries posted in 2132 words with references.

//Before writing about the two systems, i.e., job order costing system or process costing system, it is requisite to gain knowledge about general meaning of costing system. So, first of all, we will talk about costing system under the heading of introduction, for example: //


Costing system refers to the techniques and processes that are applied in the ascertainment of costs of a product manufactured and service delivered. On the whole, costing is mainly applied to study the several aspects of costs. The costing systems are merely cost finding techniques that can be mainly followed out through arithmetic process and financial statements. In addition to this, costing system is used to work out the cost per unit of the different products manufactured by a company.

Costing system is mainly utilized in order to correctly value the products & services costs as well as for the presentation of authentic financial data. With costing system, the company can easily key out marketing cost or price fixation, controlling cost, determining costing profits, driving down unneeded costs, inventory control, eliminate wastage, formulate of financial statements, and so on (Blocker, 2007). As well, costing system also helps in advising management on profitability about new lines products and alternative methods of production. On the whole, costing helps in analysis of the costs like material, labor and expenses in a right way.

//Above, we have discussed about costing system that is technique and processes employed in the ascertainment of costs related to products. Moving to the part of instructions, we will talk about job order costing and process costing system to report the costs of EEC new product. In this part, we will talk discuss the difference between these two systems.//

Appropriate Costing method:

After evaluating both costs, it is assessed that to report the costs of new 1.5GB computer memory chip, EE Company should use process costing system as it is right method for homogeneous type of products (Bradford, 2008). In this series, computer memory chips products are homogenous in composition as they are framed in same shape and size with similar technology. So, the cost per unit remains identical for each chip. This costing method is most appropriate for the company as the company does not produce this product as per the consumer specification. As well as, it usually applies the direct costs like material, labor costs and overhead costs at the same amount.

Process costing system should be use as in this manufacturing organization, production flows from raw material to the finished products continuously from one process to another, which is a prerequisite for such costing system. Through applying process costing system, EEC Company can easily build up stock for future sales as it is performed for mass consumption on a regular basis (Hansen, Mowen & Guan, 2007). In addition to this, process costing also helps in finding out the average cost of all units throughout a time period that would endlessly aid in cost reduction.

With the help of process costing system, the company can easily draw and collect direct costs and apportions costs that are indirect to a manufacturing process as this system accumulates the cost of all the products processed during a specific financial period (How to Use Process Costing, 2010). The process ...

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  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
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