Which of these best reflects a distinguishing factor between a job order cost system and a process cost system?
a.The detail at which costs are calculated.
b.The time period each covers.
c.The number of work in process accounts.
d.The manufacturing cost elements included.
The correct answer and explanation is :
The correct answer is:
a. The detail at which costs are calculated.
Explanation:
A job order cost system and a process cost system are two distinct methods of cost accounting used in manufacturing and service industries, and the primary distinguishing factor between them is the level of detail at which costs are calculated.
- Job Order Cost System:
- This system assigns costs to specific jobs or batches.
- Each job is unique and has different production requirements, so costs are accumulated separately for each job.
- Direct materials, direct labor, and overhead costs are traced or allocated to each specific job.
- A job cost sheet is maintained for each job, detailing costs incurred.
- This system is used in industries such as custom furniture manufacturing, construction, and specialized machinery production, where products are distinct and made-to-order.
- Process Cost System:
- This system accumulates costs by department or process rather than by individual jobs.
- It is used in industries where production is continuous, and identical products are mass-produced (e.g., petroleum refining, chemical production, food processing).
- Costs are assigned to entire production processes over a set period and then averaged over all units produced.
- Instead of tracking each job separately, the system calculates costs per unit by dividing total costs by total units produced within the process.
Why the Other Options Are Incorrect:
- b. The time period each covers – Both systems record costs over similar time periods, so this is not a distinguishing factor.
- c. The number of work in process accounts – While job order costing typically has one WIP account per job and process costing may have multiple WIP accounts, this is not the primary distinction.
- d. The manufacturing cost elements included – Both systems include direct materials, direct labor, and overhead, so this is not a distinguishing factor.
Thus, the main difference is the level of detail at which costs are tracked, making option (a) the correct answer.