Page 736 - Accounting Principles (A Business Perspective)

18. Managerial accounting concepts/job costing

Exhibit 143: Product and cost flows

Type of production Accounting system Type of product
Job shop Job costing Customized
Hospital, custom home builder,
consulting firm
Batch production Mostly job costing Several different products
Furniture manufacturer, winery
Repetitive manufacturing Mostly process costing (operations) Few new products
Computer manufacturer, bicycle
manufacturer
Continuous flow processing Process costing Standardized
Oil refinery, paint manufacturer
Exhibit 144: Production activities and types of accounting systems
The accounting flow of costs follows the physical flow of the manufacturing process in most companies. Some
companies use an alternative approach that we discuss in Chapter 20. In this chapter and the next, we assume costs
follow the physical flow of products.
In discussing product costing, we described how accountants and managers assign costs to products. Recall that
products can be either goods or services, so this discussion applies to service and merchandising companies as well

as to manufacturing companies.
In Exhibit 144, we show how various companies choose different accounting systems, depending on their
products. First, companies producing individual, unique products known as jobs use job costing (also called job
order costing). Companies such as construction companies and consulting firms, produce jobs and use job costing.
Second, some companies, like furniture manufacturers, produce batches of products. They produce all of the
components of a single product (e.g. coffee tables) in one batch. They would then produce the components of
another product (e.g. dining room sets) in a new batch. (Some university food service companies prepare meals this
way.) Companies such as these use job costing methods to accumulate the cost of each batch.
The last two types of production in Exhibit 144 use process costing methods described in Chapter 19, so we give

just a brief overview here. Repetitive manufacturing lends itself to the use of automated equipment that minimizes
the amount of manual material handling. Automobile assembly plants, bicycle assembly plants, and computer
assembly plants use repetitive manufacturing.
Continuous flow processing is the opposite of job shops. Companies using this process continuously mass-
produce a single, homogeneous product. Companies use process cost systems in manufacturing paint, grinding
flour, and refining oil.

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