Cost Behavior Patterns and Concepts

Applied Managerial Accounting

Cost Behavior Patterns and Concepts

June 8, 2013

Abstract

Every manufacturing organization knows the importance to properly assign and determine the costs of their products. The cost of the products is a determining factor whether or not an organization makes a profit or not. This paper will look at the job-order costing system and process costing system. It will show the differences between the two and describe which system works best for EEC to track cost of their new 1.5 gigabyte computer memory chip. A description of the selected system will show how it will track costs of the memory chip, identify the cost driver and provide an explanation of how it tracks these costs. Examples of products that EEC may offer will be provided for both job-order costing and process costing is applicable (CTU Online, 2013).

Cost Behavior Patterns and Concepts

EEC recently purchased a 1.5 gigabyte memory chip. Now they must determine the best method of determining the costs for manufacturing the chip – job-costing or process costing. Choosing the correct method to collect and assign costs are critical since they determine profits or losses. This choice is determined by EEC’s products and processes (Process vs. Job Order Costing , 2013).

Job-order costing and process costing have similarities and differences. They both provide EEC a cost per unit for a product that is determined by the direct costs that are related to the production of this product. They both have the same intent which is to allocate material, manual labor, and the overhead costs used to produce the product. Job-costing and process costing are different because of their ability for tracking the cost from start to finish. Job-order costing tracks the amount of raw material and labor that is traced to a single finished product. Overhead for job-order costing is set at a pre-determined amount. Process costing tracks a large quantity of same products when it is unable to trace...