q1
An advertising agency would use job costing for Pepsi because it is unique and distinct form other advertising campaigns for other clients. Because the products and services are distinct, job-costing systems accumulate costs separately for each product or service (Datar, 2014). A bank would use process costing in order to determine the cost of deposits in a checking account because it provides the same service to all of its customers for their deposits. In a process-costing system, the cost object is masses of identical or similar units of a product or service (Datar, 2014).
Both of these costing systems have a similar purpose which is to assign cost for materials, labor and products and compute the cost of each unit. Understanding these results will help managers understand the specific costs associated with each product. The similarity is used to understand the products costs of each unit whether the method is job costing where specifics methods are used or its process costing where mass services are used in order to identify the unit costs. After identifying the unit cost, managers can perform an analysis from the expected cost to the actual cost in order to make strategic decisions that are more effective and efficient to their production systems. Job costing is valuable to mangers due to them being able to break down costs by department, as well as needs. This way they can see what is needed in each department and how much of the company’s money needs to be allocated for that department in order to get the job done.
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Q2
The advertising agency would use job costing for advertising campaign for Pepsi due to it being specific for that client. In the video titled “What is JOB COSTING? What does JOB COSTING mean? JOB COSTING meaning, definition & explanation” YouTube (2017), stated the following;
Job costing tracks the cost and revenue by job and enable standardize reporting of profitable by job. For an accounting system to support job costing it must allow job numbers to be assign to individual items of expense and revenues.
The main purpose for job cost is to identify all aspects for each jobs. An example would be home builders who design specific houses for customers and gathers the cost separately for each job.
Process costing refers to a cost accounting method that is used for assigning production costs to mass-produced goods (Indeed, 2021). Process costing can be used to calculate the cost of each checking account withdrawal. They have similarities due to them having the same goal, which is to determine the cost of the products, they both use a predetermined overhead rate. Another similarity is that the unit cost information is needed by management for the purpose of decision making.
The importance of these result allow for managers to get detailed information on the production statistics of individual departments or work groups. Another importance is allowing managers to calculate the profit earned on individual jobs. Allowing them to better learn if certain jobs are needed to pursue on get rid of in the future.
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Q3
Job order costing is an accounting system that traces the individual costs directly to a final job or service, instead of to the production department(Graybeal, 2018). The cost object is masses of identical or similar units of a product or service. This per-unit cost is the average unit cost that applies to each of the identical or similar units produced in that period(Datar& Rajan, 2014). The advertising agency would use Job order costing since each campaign would be different and customized for the cloned. In the bank, the process is the same for each withdrawal and so process costing is used. Job order costing due to heterogeneous tasks, process costing work with homogeneous tasks. Job costing and process costing have important similarities: Both job and process cost systems have the same goal: to determine the cost of products(Job Order Costing vs Process Costing).
The management of each business relies on knowing each cost when making decisions, such as setting the sales price, planning production and staffing schedules, and ordering materials(Graybeal, 2018). Another step while making a decision of taking up a project is making predictions about the future. The managers estimate the cost of direct materials, direct manufacturing labor, overhead, qualitative factors and risk factors and evaluate any biases they might have. Managers make decisions of taking up a job by choosing among various alternatives(Datar& Rajan, 2014).
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