Differences Between Job-Order Costing and Process Costing Systems

To create a viable pricing strategy, an organization has to be fully aware of the unique characteristics of the product or service that it is selling. As a result, a choice between a job-order costing framework and a process-costing system can be made. The uniqueness of a product quickly becomes debatable in the context of the global environment, where similar offers emerge on a regular basis. Still, a job-order costing system is typically deployed when creating unique products, whereas the process-costing one is introduced into serialized and standardized production.
A range of small and some large companies that hold a monopoly for a specific product or service choose the job-order costing approach.

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For example, a construction company such as Bechtel is likely to utilize the job-order costing approach when setting prices for its services due to the variability in the types of tasks and prices for materials (Mowen, Hansen, & Heitger, 2018). Herein lies the reason for selecting it as the prime example of the described pricing approach.

In turn, Nestle can be seen as a typical specimen of a process-order costing system since it produces uniform goods. The company in question was chosen since, while offering a very large variety of products that are becoming more diversified with each step in the firm’s development, Nestle’s products are very homogenous and involve a standardized approach to production. For instance, the company uses a set number of ingredients in each product. Therefore, the company in question can be seen as a prime example of a firm that is most likely to utilize a process costing system (Weygandt, Kimmel, & Kieso, 2018). While both Nestle and Bechtel may consider changing their products and, thus, their costing systems, the current approach toward setting the costing framework seems legitimate given the specifics of their competitive advantage.

References

Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2018). Managerial accounting: The cornerstone of business decision-making (2nd ed.). Boston, MA: Cengage Learning.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Accounting principles (13th ed.). New York, NY: John Wiley & Sons.

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StudyCorgi. (2021, August 7). Differences Between Job-Order Costing and Process Costing Systems. Retrieved from https://studycorgi.com/differences-between-job-order-costing-and-process-costing-systems/

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StudyCorgi. (2021) 'Differences Between Job-Order Costing and Process Costing Systems'. 7 August.

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