Process Cost System in General

Process Cost System in General

 There are Two Basic costing systems to use to determine the cost of goods manufacturing, There are Process Cost System and Job Order Cost System “we can told them Process or Job Costing too”. 

We can choose the costing system depending on the type of our production, for Example: we can use Job order costing system when we make custom product like furniture or special order printing. On the other side we can use Process Cost System “the second type of basic costing system” when output is no relation with the selling volume “We produce to storage now and sell it later.” Like screw, gears, bolts and pharmaceutical items.

In many ways Process Cost System is similar to Job order costing system and in some ways there are some differences. To show that, let’s see.

Similarities between Process costing and Job Order Costing system are:

1-     The same basic purpose exist in both costing system, which are :

a-     To assign raw material, labor, and overhead costs to products.

b-     To provide a mechanism for computing unit costs.

c-      To provide data essential for planning, control and decision making.

2-     Both systems maintain and use the same basic manufacturing accounts including Manufacturing Overhead, Raw Material, Work in Process, and Finished Goods.

3-     The flow of costs through the manufacturing accounts is basically the same in both.

As we seen from these points, we have similarities between Job costing and Process Cost System and we need to know the differences between Process Cost System and Job order system now to see that get the next points:

1-     In Process Cost System a single product is produced on a continuous basis or for long periods of time.

2-     In Process Cost System costs are accumulated by departments.

3-     In Process Cost System unit costs are computed by department “Department production report”.    

By contrast in the job order cost system are:

1-     Many different jobs are worked on one period.

2-      Costs are accumulated by individual job.

3-     Unit costs are computed by job “the job cost sheet”.

As we seen from previous points, there are more differences between Process cost system and Job costing system.

Before finished this article we should told you to note this next points:

1-     The key document is department production report.

2-     In Job order costing system the key document is the job cost sheet “we don’t need that in Process Costing System”.

3-     In Process Cost System we produce to storage and sell the products later.

4-     In Process Cost System the department is the main point.

5-     In Process Cost System we use the same accounts as Job order costing System.

6-     In Process Cost System we have single product for long time By contrast in job order costing system.

7-     Process Cost System is similar with job order in some ways and differences in other ways.

That is the finished point of this article, have good time with my blog.

The author: Mohamed Ragab