How process costing system differs from a job order costing system?

Costs can be accumulated by using different Work in Process Inventory accounts for each product and for each department through which that product passes. Alternatively, costs can be accumulated using departmental Work in Process Inventory control accounts that are supported by detailed subsidiary ledgers containing specific product information.

Cost accumulation in a process costing system differs from that in a job order costing system in two ways: 

(1) the quantity of production for which costs are accumulated at any one time, and 

(2) the cost object to which the costs are assigned. 

 

Suppose that XYZ Co. occasionally contracts to hand-make four-foot candles for special religious occasions. For these orders, the company would use job order costing. The direct material and direct labor costs associated with each four-foot candle would be accumulated and assigned directly to the buyer’s job. After each job is completed, the total material, labor, and allocated overhead costs are known and job cost can be determined.

In contrast, for its traditional candles, XYZ Co.would use a process costing system to accumulate periodic costs for each department and each product. Because a variety of sizes, colors, and scents of candles are manufactured each period, the costs assignable to each type of product must be individually designated and attached to the specific production runs. These costs are then assigned to the units worked on during the period.