Asked by Islam Soliman on Jun 29, 2024
Verified
Discuss the use of job order costing for professional services businesses. What are the similarities and differences between service and manufacturing business job order costing?
Job Order Costing
A cost accounting system used to accumulate costs for individual jobs or orders, suitable for companies producing unique or custom products.
Professional Services
Specialized services provided by individuals with expertise or qualifications in particular fields, like law, accounting, or consultancy.
Manufacturing Business
A company engaged in the conversion of raw materials into finished products through the use of labor and machinery.
- Understand the principles of job order costing in both service and manufacturing businesses.
- Identify the similarities and differences between job order costing in service and manufacturing sectors.
Verified Answer
Like manufacturers, direct labor and overhead costs for service companies are accumulated in work in process accounts. Unlike manufacturers, materials costs for service companies are usually insignificant and treated as overhead. When a job is completed, it is transferred to Cost of Services, which is similar to Cost of Goods Sold. Service companies do not use finished goods accounts.
Learning Objectives
- Understand the principles of job order costing in both service and manufacturing businesses.
- Identify the similarities and differences between job order costing in service and manufacturing sectors.
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