Operations costing and process costing system

Accounting
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What is the difference between operations costing and a process costing system? How does a company decide whether to use a job order or a process cost system?

* Response should be at least 150 words.

Aug 15th, 2015

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Operating costing: Under this method, the cost of every operation is calculated. This is appropriate for industries in which producing a product needs stages of operation.

Process costing: If a product passes through dissimilar stages of manufacture or processes, the method of costing appropriate is process costing. The special characteristic of this method is the product at the end of a process turn into the raw material for the next process until it reaches the last process.

An operation costing is alike to process costing. In this operation costing standardized methods are used to produce the product. Simultaneously, the product may have some customized individual characteristics that need the use of the job order cost system.

In deciding which system to apply, a cost -benefit trade off takes place. In a job-order system, comprehensive information concerning to the cost of the product is involved. The cost of implementing this system is frequently expensive. In a process cost system, an average cost of the product will be sufficient and so the cost to implement is less. In summary, the cost of implementing the system must be balanced against the benefits offered from the extra information.

Reference

Operational Costing Vs. Process Costing Systems

http://smallbusiness.chron.com/operational-costing-vs-process-costing-systems-37842.html

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Aug 15th, 2015

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