There are numbers of Cost Accumulation Procedures but here I will discuss about Job Order and Process Cost Accumulation Procedures. Both the actual cost system and the standard cost system may be used in connection with either job order or process cost accumulation procedures. Let us have a look.
The Job Order Cost Accumulation Procedures:
The job order cost accumulation procedures keep the costs of various job or contracts separate during their manufacture or construction. The method is applicable to job order work in factories, workshops, and repair shops as well as to work by builders, construction engineers, shipbuilders, and printers.
The cost unit is the job, the work order, or the contract; and the records will show the cost of each. The method presupposes the possibility of physically identifying the jobs produced and of charging each with its own cost.
A variation of the job order cost method is that of costing orders by lots. A lot constitutes the quantity of product which can be conveniently and economically produced and costed. For example, in the shoe manufacturing industry a contract is divided into lots, each lot being from 100 to 250 pairs of one size and style shoe. The costs are then accumulated for each lot.
The Process Cost Accumulation Procedures:
The process cost Accumulation Procedures consist of computing an average unit cost of production by dividing the total manufacturing cost by the total number of units produced in the factory over a specific period of time. This method is used when units are not separately distinguishable from one another I during one or more manufacturing processes.
The following conditions may also exist
- The product of one process becomes the material of the next process
- Different products or even by-products, are produced by the same process
A process cost Accumulation Procedures are applicable to industries such as flour mills, breweries, chemical industries, textile factories, and many others. Because of the nature of the output, it is necessary to compute a unit cost for each process. A process is often identifiable with a department. Such a computation is prepared on a process cost sheet or a cost of production report.