A job order costing method is ideal when the cost and production requirements are not identical for the product or consumer. Further, direct labor and material costs can be tracked to the final product effortlessly (Javed, 2022). Additionally, the technique is accustomed to a more complex scheme and should only be applicable when the level of details is necessary. Consequently, events such as reworks can affect the financial statements as the company uses the job order sheet that has materials requisitioned and the sum of direct labor and overhead.
On the other hand, a process costing system is ideal when a standardized approach is applied in manufacturing identical products. Further, direct labor and materials cannot be economically tracked to a particular unit (Javed, 2022). Moreover, the method is regularly appropriate when producing products in batches. Additionally, the actual cost for making each department through the form fluctuates, but the average outcome is enough determination of the cost for each assembled unit. Overall, spoilage affects the financial statement in process costing when products are finally traded, and the price gets moved to the price of products sold account, which shows on the income statement.
The difference between the two costing methods conforms to the costs allotted to the products. Either costing system is selected depending on how it works in manufacturing. Essential to take away is that the job order costing method often is expensive to sustain as it involves cost when assigning each labor and material for the product. On the other hand, the process costing system is relatively cheap to maintain and efficiently operates when products are similar. Further, tracking the cost of labor and material to the final product is not easy.
Planning, Coordinating, and Business Operations
A static budget, better known as a fixed budget, is a type of budget in which the sales value does not change despite the sales volume. Further, the value is not affected despite more than expected changes in the activity level (Ghofur et al., 2019). On that note, the company often prepares the budget before the budgetary period. Moreover, a static budget is developed using the previous year’s budget as the base.
A flexible budget is a financial plan of projected cost and revenue for varying output levels. The differences occur due to changes in the level of activity or the volume. Further, the budget sets the standard to measure the variance of the projected budget and a company’s actual performance (Ghofur et al.,2019). Moreover, the plan can be developed for the whole company or a particular unit. Overall, the budget avails cost projections at different levels of activity.
A static budget is not affected by the absolute production volume achieved. It is a prior estimate of income and expenditure for a specific period. Further, it cannot establish costs correctly in case of a change in circumstance. Moreover, in preparation for the budget, the assumption is made that all the conditions remain unchanged. On the other hand, a flexible budget is subject to alteration suitably with the nature of action realized. Further, a flexible budget is prepared within varying levels of the undertaking, bearing in mind the feasible modifications in the operational facets of an enterprise.
A Type of Business Using a Flexible Budget
A seasonal business such as a lawn care service benefits from a flexible budget. This is because there is an anticipation of changing staff levels as customers come and go over time. Therefore, unlike a static allocation, a flexible budget is subject to change and can fit the seasonal type of business. In addition, a flexible budget is advantageous over a fixed budget as it can adapt to the constant change presented by this type of business.
Ghofur, A., Agustina, N., & Elvierayani, R. R. (2019). Evaluation of Production Cost Control Using Flexible Budget and Direct-Cost Variance in Restaurant Lamongan Sport Center: Evaluation of production cost control using flexible budget and direct-cost variance in restaurant Lamongan Sport Center. Jurnal Mantik, 3(3), 162-166.
Javed, R. (2022). Job order costing vs process costing. Accounting. Web.