Cost Accounting (14th Edition)

JOB-COSTING AND PROCESS-COSTING SYSTEMS 101
to cost multiple identical units of distinct furniture products. Because the products
and services are distinct, job-costing systems accumulate costs separately for each
product or service.
2. Process-costing system. In this system, the cost object is masses of identical or similar
units of a product or service. For example, Citibank provides the same service to all its
customers when processing customer deposits. Intel provides the same product (say, a
Pentium 4 chip) to each of its customers. All Minute Maid consumers receive the same
frozen orange juice product. In each period, process-costing systems divide the total
costs of producing an identical or similar product or service by the total number of units
produced to obtain a per-unit cost. This per-unit cost is the average unit cost that
applies to each of the identical or similar units produced in that period.
Exhibit 4-1 presents examples of job costing and process costing in the service, merchandising,
and manufacturing sectors. These two types of costing systems are best considered as opposite
ends of a continuum; in between, one type of system can blur into the other to some degree.
Job-costing
system
Process-costing
system
Distinct units of
a product or service
Masses of identical
or similar units of
a product or service
Many companies have costing systems that are neither pure job costing nor pure
process costing but have elements of both. Costing systems need to be tailored to the
underlying operations. For example, Kellogg Corporation uses job costing to calculate
the total cost to manufacture each of its different and distinct types of products—such as
Corn Flakes, Crispix, and Froot Loops—and process costing to calculate the per-unit
cost of producing each identical box of Corn Flakes. In this chapter, we focus on jobcosting
systems. Chapters 17 and 18 discuss process-costing systems.
Decision
Point
How do you
distinguish job
costing from
process costing?
Job
Costing
Used
Service Sector Merchandising Sector Manufacturing Sector
• Audit engagements • L. L. Bean sending • Assembly of individual
done by Price individual items by aircrafts at Boeing
Waterhouse Coopers mail order • Construction of ships at
• Consulting • Special promotion of Litton Industries
engagements done by new products by
McKinsey & Co.
Wal-Mart
• Advertising-agency
campaigns run by
Ogilvy & Mather
• Individual legal cases
argued by Hale & Dorr
• Computer-repair jobs
done by CompUSA
• Movies produced by
Universal Studios
Exhibit 4-1
Examples of Job
Costing and Process
Costing in the Service,
Merchandising, and
Manufacturing Sectors
• Bank-check clearing at • Grain dealing by Arthur • Oil refining by Shell Oil
Process Bank of America Daniel Midlands • Beverage production by
Costing • Postal delivery • Lumber dealing by PepsiCo
Used (standard items) by U.S. Weyerhauser
Postal Service