ADMS 1000 Lecture 6: ADMS 1000 Lecture 6 Notes – Process Costing, Job-Order Costing, Measuring Direct Materials Cost and Job Cost Sheet
17 Oct 2018
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ADMS 1000 Lecture 6 Notes – Process Costing, Job-Order Costing, Measuring Direct Materials
Cost and Job Cost Sheet
Introduction
• A process costing system is used in situations where the company produces many units
of a single product (such as frozen orange juice concentrate) for long periods at a time.
• Examples are mixing cement at St. Marys Cement, refining oil at Petro-Canada, mixing
and bottling beverages at Coca-Cola, and making wieners at J. M. Schneider Inc. (owned
by Maple Leaf Foods Inc.).
• All of these industries are characterized by an essentially homogeneous product that
flows evenly through the production process on a continuous basis.
• Process costing systems accumulate costs in a particular operation or department for an
entire period (month, quarter, or year) and then divide this total cost by the number of
units produced during the period.
• Since one unit of product (litre, kilogram, and bottle) is indistinguishable from any other
unit of product, each unit is assigned the same average cost.
• This costing technique results in a broad average unit cost figure that applies to
homogeneous units flowing in a continuous stream out of the production process.
Job-Order Costing
• A job-order costing system is used in situations where many different products or
services are produced each period.
• For example, a Levi Strauss clothing factory may make many different types of jeans for
both men and women during a month.
• A particular order might consist of 1,000 stonewashed men’s blue denim jeans, style
number A312, with a 32-inch waist and a 30-inch inseam.
• This order of 1,000 jeans is called a batch or a job.
