rder costing system is mainly used in service industries including hospitals, movie studios, law firms and even repair shops as well as in cases where individual non-homogeneous goods are produced by an organization.
When it comes to this type of system, record keeping and cost problems can be very complex to handle especially where different products and services are available, compared to when dealing with single products and services. Since the products available are different, the cost will relatively be different hence a cost record for each product. Therefore, job order costing needs a lot of effort and concentration as compared to process costing system.
Process costing involves tracing and accumulation of direct costs, and the allocation of indirect costs of manufacturing processes (Hansen & Mowen, 2006). Process costing is much applicable when the products in question are naturally homogeneous. Costs are in this case assigned to products which are produced en mass as noted by Hansen and Mowen (2006). This method is mostly suitable for industries such as chemical manufacturing companies since the process flow is continuous. In this system a production report is prepared to summarize the totals and cost of units.
In the case of a company that deals with chemicals, cement, electrical parts, textiles and pharmaceuticals products, process costing method is advisable. This is because their production process is continuous and order costing method may not be appropriate for this kind of companies.
Job order costing is applicable in companies that manufacture many different products for example clothing factory and service industries (Hansen & Mowen, 2006). Each product has its own price hence this system is appropriate to use and follow. Records of each and every order and its cost are stored separately for easy understanding and follow up. Records in a process order costing system are much easier to follow and less complicated as compared to job order