BUS 5110: Managerial Accounting-Written Assignment Unit 2 1
The Cost Accounting Method for Wet Suit World Company
BUS 5110: Managerial Accounting
University of the People
Instructor: Dr. Robert Amoah
February 2022
BUS 5110: Managerial Accounting-Written Assignment Unit 2 2
Introduction
The proposed estimate of a product (cost) depends on the type of product the business produces
and the amount of effort put into analyzing costs associated with unit products, processes and
activities. Therefore, the business relates the cost of producing a product to the desired rate of
return for the effort.
The three costing methods that will be discussed are job order costing, process costing and
activity-based costing which have their own methods, benefits and drawbacks.
“JOB ORDER COSTING is a framework adopted when clients request small, exclusive groups
of items. This framework decides the cost of every item and guarantees that the expense for
every item is practical enough for a client to buy it while giving a chance to the organization for
generating profit.” (Accounting Hub, 2020). A job cost system gathers expenses caused by the
separate jobs. Organizations usually use job cost systems to recognize individual items or at the
time of producing items to satisfy a client’s specific wants. Job order costing is used by printing
presses, motor repair shops, automobile garages, film studios, engineering industries.
PROCESS COSTING is a method for allocation of cost for mass quantity of product.
According to Walther and Skousen (2009), “Process costing is methodology used to allocate the
total costs of production to homogenous units produced via a continuous process that usually
involves multiple steps or departments.” But the physical nature of these “processes” makes it
hard to identify and associate specific units of direct labor and direct material with the final
output. “Examples of companies that use process costing include Chevron Corporation
(petroleum products), the Wrigley Company (chewing gum), and Pittsburgh Paints (paint).”
(Heisinger & Hoyle. (n.d.))
BUS 5110: Managerial Accounting-Written Assignment Unit 2 3
ACTIVITY BASED COSTING (ABC) is calculated on the basis of assigning cost to the
activity, number of the activities and classification of the activities but not product and services.
According to Walther and Skousen (2009), a simplified explanation of ABC is that it attempts to
divide production into its core activities, define the costs for those activities and then allocate
those costs to products based on how much of a particular activity is needed to produce a
product.
Comparison:
Job Order Costing Process Costing Activity based Costing
Based on specific unit Based on continual process Based on activity
Differences Different products Simlar products Any type of product
Unit cost calculated by item Unit cost calculated by department Unit cost calculated by activity
Good for contract works Average cost easy to determined Total cost calculated accurately
Benefits Costs are traced to each job Costs are traced to the department Costs are traced to activity
Each department has its work in
pregress account Activities are easily monitored
Cost vary and not appropriate for all Costly and Not easy to
Shortfalls Vary from contract to another purposes implement
Manual work much involved Do not give accurate estimates Technicalities involved
Conclusion
The costing methods elaborated above have their own benefits and disadvantages which cannot
be interchangeable or used to achieve the same goal for different products or businesses. There is
therefore the need for cost accountants to select the appropriate costing method that suit their
pricing decisions.
A well-supported proposal for the cost method Wet Suit World should use is the Process
Costing because they use the material for all the suit which is appropriate for mass production.
BUS 5110: Managerial Accounting-Written Assignment Unit 2 4
References
Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers.
https://2012books.lardbucket.org/books/accounting-for-managers/s08-how-is-process-
costing-used-to.html
Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost Accounting.
https://library.ku.ac.ke/wp-content/downloads/2011/08/Bookboon/Accounting/managerial-
and-cost-accounting.pdf
What is job order costing? Accounting Hub. (2020, October 30). https://www.accountinghub-
online.com/what-is-job-order-costing/#h-definition-of-job-order-costing
