Q4RQ - Horngren'S Financial And Managerial Accounting

Question

Question: List ways in which job order costing systems are similar to process costing systems.

Step-by-Step Solution

Answer

Answer:

The similarity of process costing and the job order costing system:

1. Both system of costing have same goal of determing the product cost of direct material, direct labor and manufacturing overhead.
2. Direct material, direct labor and manufacturing overhead are assigned to work in process inventory in each costing system. 
3. Both the system use predetermined overhead rates to apply the manufacturing overhead.

Step 1: Costing system

The costing system is used by the companies to determine the overall costing of the manufactured product.

Step 2: The objective of job order costing system and the process costing is similar

The objective of both job order costing system and the process costing system is to determine the product cost of direct material, direct labor and manufacturing overhead through the three inventory account i.e. the WIP inventory account, finished goods inventory account and raw material account.

The production cost is assigned to the WIP inventory account and both the system compute the predetermined overhead rate for allocation of manufacturing overhead.