Cost Estimation And Profit Planning.

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Job Costing System

A job costing system is a method of accounting that tracks the costs associated with each individual job or project. This system is used by companies that produce unique products or services, such as construction companies, custom furniture makers, and consulting firms.

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      Characteristics of a Job Costing System:

• Each job is treated as a separate cost center.
• Direct materials, direct labor, and overhead costs are assigned to each job.
• Job cost sheets are used to track the costs of each job.

Examples of Companies Using Job Costing Systems:

• Construction companies: Construction companies use job costing systems to track the costs of building individual projects, such as houses, office buildings, and roads.
• Custom furniture makers: Custom furniture makers use job costing systems to track the costs of making individual pieces of furniture, such as chairs, tables, and sofas.
• Consulting firms: Consulting firms use job costing systems to track the costs of providing services to individual clients, such as marketing campaigns, financial audits, and legal advice.

Process Costing System A process costing system is a method of accounting that tracks the costs associated with each stage of production. This system is used by companies that produce standardized products or services in large quantities, such as manufacturing companies, oil refineries, and power plants. Characteristics of a Process Costing System:

• Production is divided into stages or processes.
• Costs are assigned to each stage or process.
• Production cost reports are used to track the costs of each stage or process.

Examples of Companies Using Process Costing Systems:

• Manufacturing companies: Manufacturing companies use process costing systems to track the costs of producing individual units of product, such as cars, computers, and televisions.
• Oil refineries: Oil refineries use process costing systems to track the costs of refining crude oil into various products, such as gasoline, diesel fuel, and jet fuel.
• Power plants: Power plants use process costing systems to track the costs of generating electricity.

Comparison of Job Costing and Process Costing Systems The following table summarizes the key differences between job costing and process costing systems:

Feature	Job Costing System	Process Costing System
Type of production	Unique products or services	Standardized products or services
Production unit	Job	Stage or process
Cost center	Job	Stage or process
Cost assignment	Direct materials, direct labor, and overhead costs	Costs
Cost tracking	Job cost sheets	Production cost reports

drive_spreadsheetExport to Sheets Conclusion The choice of whether to use a job costing system or a process costing system depends on the nature of the company's production process. Companies that produce unique products or services will typically use a job costing system, while companies that produce standardized products or services in large quantities will typically use a process costing system.