which can be determined for a product. Indirect cost, on the other hand, includes factory overhead and similar cost elements that cannot be assigned to a specific product or service.
In process costing, the cost for each product is not calculated. Instead, the costs are calculated for an entire batch, or service provided for the entire month. This way, it is easier and cheaper to calculate the costs rather than to attempt to determine costs for each unit of output; however, the costs calculated can be used to determine average costs for each unit. The process costing technique, thus, is inherently inaccurate.
Process costing technique is most suitable for industries with similar types of products or services produced in an assembly like fashion. In health care industry, although it can be argued that patients usually have similar problems (after all, all are human beings) and require similar treatment. However, the treatment does not follow a fixed approach (for example, not all patients suffering with influenza are recommended the same medicine). The treatment differs based on patients' past history, allergies to certain medicines and other factors. Thus it may not be practicable to implement process costing technique in the health care industry.
Job order costing differs from process costing in the way it captures costs. ...Show more