UNIT 2 - Written Assignment - BUS 5110

Written Assignment Unit 2
Three costing methods of job order costing, process costing, and activity-based costing.
BUS 5111
University of the People
April 2021
INTRODUCTION
According to Touvila (2021), Cost accounting is a form of managerial accounting that
measures the total production cost of a company by assessing variable and fixed costs.
Moreover, Walther and & Skousen (2009) described cost accounting as the collection,
assignment and interpretation of cost.
An accurate system of costing is essential for controlling the company's costs, particularly the
method of calculating the cost. There are several ways to perform cost analysis, including
job-order costing systems, process costing systems, activity-based costing systems.
I would assess the advantages and disadvantages of different costing methods, then evaluate
and propose a specific method for a theoretical company called Wet Suit World.
JOB ORDER COSTING

 Definition: Job order costing is a method of assigning and accumulating the costs of
an individual unit of output to each job order. (Averkamp, n.d.).
 Usage: Job order costing is typically used when goods differ from one another, each
with a significant price attached to it. Due to significant discrepancies in
manufacturing methods of the products, separate jobs are created for each product.
Each individual job contains a report with details on every material, labor, and
overhead used for its manufacture.
PROCESS COSTING
 Definition: Process costing is a method used to allocate production costs to
homogeneous units that are produced after a series of steps or departments. (Walther,
2018)
 Usage: Process costing is used when a mass of similar products is produced in
quantities which can not be differentiated with regard to the individual production
units associated with each unit. In other words, the costs associated with each unit of
output are assumed to be the same. (Bragg, 2021).
ACTIVITY BASED COSTING (ABC)
 Definition: ABC is a costing system that assigns overhead costs to related products
and services. (Kenton, 2020).
 Usage: Activity based costing is primarily is used in manufacturing industry where
the manufacturing can be split into the events, unit of work or a task. Costing systems
with this method are used in target costing, product costing, analyzing product profits,
and identifying profitable customers. (Kenton, 2020)
A COMPARISON AND CONTRAST OF THE METHODS
Job Order Costing Process Costing Activity Based Costing

Based on Order Based on the contuinity of Based on Activities
process Involved
Low production High production Low & high production
Volume Volume Volume
Different and Similar products Any type of products
Varied products
Unit cost Unit cost Unit cost
Calculated by item/ Calculated by department Calculated by item/
Job Activity
BENEFITS AND SHORTFALLS OF THE METHODS
Job Order Costing Process Costing Activity Based

Costing
Benefits Suitable for cost Average cost can be Accurate cost
contractors and consultant easily determined calculation
Trace the costs to the job Trace the costs to the Trace the cost to
production department activities
or batch
Cost for each job Each production Monitoring and voting
department has its are performed
own work-in-process accordingly.
inventory account
Shortfalls Job costing vary from Cost vary and may not Not easy to implement
contrator to another suit for all purposes and costly
More manual work Do not give any More technical work
involved precise estimate if required
single process and
different products
THE COST METHOD FOR “WET SUIT WORLD”
Based on the above definitions and an understanding of some cost accounting methods, I
believe process costing will be best for Wet Suit World, due to the fact they manufacture
similar products. The products they produce are the same and contain only very slight
variations, such as sizes and the insulation, and the insulating layers.
References :
Averkamp, H. (n.d.). What is job order costing?: AccountingCoach. AccountingCoach.com.

https://www.accountingcoach.com/blog/what-is-job-order-costing.
Bragg, S. (2021, April 18). Process costing: Process cost accounting. AccountingTools.
https://www.accountingtools.com/articles/2017/5/14/process-costing-process-cost-
accounting?rq=Process+costing%3A+Process+cost+accounting.
Kenton, W. (2020, December 19). Activity-Based Costing (ABC). Investopedia.

https://www.investopedia.com/terms/a/abc.asp.
Tuovila, A. (2021, March 16). Cost Accounting Definition. Investopedia.

https://www.investopedia.com/terms/c/cost-accounting.asp.
Walther, L. M., & Skousen, C. J. (2009). Managerial and Cost Accounting. Ventus
Publishing ApS. https://library.ku.ac.ke/wp-
content/downloads/2011/08/Bookboon/Accounting/managerial-and-cost-
accounting.pdf.
Walther, L. M. (2018, November 15). Process Costing. principlesofaccounting.com.

https://www.principlesofaccounting.com/chapter-20/process-costing/.

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Written Assignment Unit 2

JOB ORDER COSTING

ACTIVITY BASED COSTING (ABC)

A COMPARISON AND CONTRAST OF THE METHODS

Job Order Costing Process Costing Activity Based Costing

BENEFITS AND SHORTFALLS OF THE METHODS

Job Order Costing Process Costing Activity Based

THE COST METHOD FOR “WET SUIT WORLD”

Averkamp, H. (n.d.). What is job order costing?: AccountingCoach. AccountingCoach.com.

Kenton, W. (2020, December 19). Activity-Based Costing (ABC). Investopedia.

Tuovila, A. (2021, March 16). Cost Accounting Definition. Investopedia.

Walther, L. M. (2018, November 15). Process Costing. principlesofaccounting.com.

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