Costing Systems

Costing Systems


Costing is a vial process for many companies who want to engage in keeping track of how funds are being spent during the operational processes of their business (White, 2010). Eddison Electronics Company (EEC) has launched a innovative computer memory chip, and choosing the right costing system for this new product is crucial to effectively running the business. This article will explore two popular costing systems, a job order costing system and a process costing system, and determine which would be the best system for tracking the costs of the new computer memory chip. The similarities and differences in each of these two costing systems will be indentified and a description of how each would work to track the costs of the new produced will be discussed. Also, examples will be provided as to what products the company might offer in which each of these systems would be appropriate to use.

Job Order Costing System

A job order costing system is utilized by businesses that manufacture products for specific orders. It is employed in circumstances where a business wants to know the expenses associated with manufacturing different jobs, products, or services for a given period. By using this system to determine the costs of expenses, the expenses are tracked to the activity (job) and then the expenses of performing the activity are split-up by the unit numbers of the activity to succeed in determining the cost per-unit average of the product. The costs of producing each job in a job order costing system must be captured and tracked in order to determine the accurate cost of producing the specific product. Some costs for a business that would be associated with this may include materials, labor, and overhead related to producing a product. However, materials labor and overhead will differ from specific product and specific customer order to the next. Personalized production that is specific to a customer want or job order need which may involve greater encouragement from our resources than that of the common productivity movement within the business would be an example of a particular customer or job order. For instance, if we were producing a computer chip memory which was proposed and copyrighted by a different business this would entail some re-engineering processes, as well as materials needing to be used that were not in the general inventory of our facility. Also, some added elements may need to be employed like changing the logo of the computer memory chip so that our business has copyright privileges of their own, and we are not observed as copying another businesses patent of their product. In an instance where a business is producing various forms of computer memory chips in a specified time the system related to job order costing would also be suitable to use since management would need to completely identify the actual costs associated with producing the product (Garrison, Noreen, & Brewer, 2010). In addition, EEC may offer a personalized LCD only for a given amount of time in which a system related to job order costing would be proper to track the costs associated with the product.

Tracking of Job Ordering Costing System

There are three main documents that will need to be used to track information related to a job order costing system. First, to track the job ordering cost system a job cost sheet will need to be used for the computer memory chip. The data included in this will be the product job number; information of the customer; information regarding the production of the job; such as start date of the job, completion date of the job, and date the product was shipped; material product cost information that is used, for labor and overhead for manufacturing the computer memory chip; and summary of total costs of processing the computer memory chip. Next, a materials requisition form will need to be utilized to assure that the costs of materials for the computer memory chip are properly allocated to the process of performing the job. This form will usually be completed as materials for the computer memory chip are obtained from the inventory of unprocessed materials and added to the work that is in progress. And last, a time ticket will need to be created to ensure that the labor costs associated with producing the computer memory chip are distributed to the work-in-progress inventory and this will also help ensure that the worker or worker’s that spent time on manufacturing the computer memory chip are identified (Cliff Notes, 2011).

Process Costing System

A process costing system is a system in which the expenses associated with a product is acquired by conveying costs to a bunch of similar or like units. The cost of the unit is then calculated on a standard base for each one. Process costing systems are employed in businesses that manufacture related units which are frequently created in bulks. Products created in these businesses are produced in a similar way each time they are manufactured. With that being said, the products that these businesses produce normally cost the same amount in regards to material, labor, and overhead expenses. In this type of system all costs are averaged out over all units to come to a cost per-unit for manufacturing the product. Process costing is a more relevant system to use when over an extensive time period when large quantities of a product are being produced. Also, businesses that use process costing repeatedly process their product while moving it from one operation to the next until it is finished (Garrison, Noreen, & Brewer, 2010). The products that EEC might offer where a process costing system would be proper to use include a computer memory chip or a software system where masses amount were being produced over an extended period. For instance, if the company is continually processing a computer memory chip in mass amounts we may use a conveyor belt to move the product from worker to worker to process the unit until completed.

Tracking of Process Costing System

Through the manufacturing process of completing the product process costing will trace and accumulate the direct costs of the computer memory chip and the indirect costs of manufacturing the product will be allocated through a material requisition form. Normally in large batches costs will be assigned to the computer memory chip which could include production for a complete month. The costs will then eventually have to be allocated to the individual units of the computer memory chip. The total individual units of the computer memory chip must be allocated because even though we may manufacture tons of thousands of the new computer memory chip in a particular period, the memory chip still must be sold in small masses so that cost of producing it can be conveyed from completed products to total cost of selling the manufactured product. The costs of the completed computer memory chip will then be transferred from the inventory of work-in-progress to the completed product inventory. After the per-unit cost of the computer memory chip is calculated a cost summary report will be prepared for each area that worked on the new product (Cliff Notes, 2011).

Similarities and Differences

Both a job order costing system and a process costing system serve to present a business with a cost per-unit of a product which is founded upon the direct costs related to producing the product. In this respect, both systems will have the identical intentions which will be to allocate material, manual labor, and overhead costs to products a business produces. However, a process costing system provides a per-unit cost based on manufacturing products that are consistent over an extensive time period, while a job order costing system will present costs of manufacturing different products on a per-unit basis. The costs associated with a process coding system are gathered by areas within the processing of the product, while the costs associated with a job order costing system are gathered by the individual jobs linked with processing the product. Another difference in a job costing system and a process costing system is that in tracking the costs associated with each there are two different methods for doing this. A job cost sheet is utilized to process the costing connected with products manufactured in a job costing system, and a report on production regarding each area the manufactured product passes through is used to process the costing related to the work performed (Accounting for Management, 2009).

Selected System

It is assumed that a single product, the computer memory chip, is going to be manufactured by the company in massive amounts for an extensive amount of time, so the selected system to use to track the costs associated with the new product would be a process costing system. The process costing system will serve to provide the company with processing costs related to the computer memory chip based on direct costs and operating costs (White, 2010). However, in allocating for operating costs a cost driver will be required. The cost driver is an item that can be measured, but it will drive the operating costs associated with producing the computer memory chip. With that being said, the cost driver will be a core element for causing changes in the activity of costs associated with manufacturing the computer chip memory. Operating cost costs related to producing the computer chip memory in which expenses would be influenced include machines that are needed, labor for workers who operate the machines, and power consumer for operating the machines. Conversely, when the foundation of labor directly is assumed to be the mass of operational costs associated with the product then, the direct product work hours will generally be employed as the driver (Web Finance, 2010). Also, with the company using a process coding system to trace the costs of the computer memory chip an allocation on a price per-unit can be accurately made to essentially price the new product, and plan and control expenses related to the product. Furthermore, process costing will provide feedback to managers that can be utilized to compare the expenses associated with manufacturing the computer memory chip from month to month, however managers will need to watch the costs of preparing the individual unit on a daily basis (White, 2010).


A job order costing system allows a company to break up expenses and assign them to specific jobs that in return will permit tracking costs of manufacturing the product to be more precise. Conversely, a process costing system allows a company to produce mass amounts of a product that are identical while not having to trace specific expenses connected with manufacturing the product since the costs for producing the identical product will usually remain the same time after time. Therefore, the process costing system, in my opinion, would be the best system to use for tracking the costs related to the company’s new computer memory chip. However, the overall objective here is to increase value within the company and the production processes of the products we manufacture, therefore, choosing the right costing system for the products we manufacture will enhance the company’s wellbeing, as well as the products we manufacture. Also, any costing system employed to track expenses of the products we manufacture will play a vital role in the decision making process for managers.


Accounting for Management. (2009). Similarities and differences between job order and process costing system. Retrieved from

Cliff Notes. (2011). Job order cost system. Retrieved from,articleId-21222.html

Cliff Notes. (2011). Process cost system. Retrieved from,articleId-21223.html

Garrison, R., Noreen, E., & Brewer, P. (2010). Managerial accounting, (13th ed.). New York, NY: McGraw-Hill Irwin.

Web Finance. (2010). Business Dictionary: Cost driver. Retrieved from

White, M. (2010). Free online accounting tutorial. Process costing, (Ch. 18). Retrieved from

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