- Equivalent units of production.
- Use of job cost sheets.
- Aims to compute the cost per unit of product.
- Use of a single Work in Process Inventory account.
- Identifiable units of production.
Answer: Equivalent units of production.
The correct answer is Equivalent units of production. This characteristic does not apply to job order cost accounting because it is a concept used primarily in process costing, not job order costing.
Let’s break down each characteristic to understand why “Equivalent units of production” are the odd one out.
1. Equivalent Units of Production
This term refers to the number of units that could have been completed given the costs incurred during a specific period. It is most commonly used in process costing, which applies to industries where products are produced in a continuous flow, like oil refining or chemical manufacturing.
In job order costing, each job or order is treated as a separate unit of production, and costs are tracked on a per-job basis. Job order costing does not require the concept of equivalent units because the focus is on individual jobs, not on an ongoing, mass-production process.
For example, in a custom furniture manufacturing shop, each piece of furniture is considered a separate job with its own distinct costs, making equivalent units irrelevant in this scenario.
2. Use of Job Cost Sheets
One of the key features of job order costing is the use of job cost sheets. A job cost sheet is a document that tracks all the costs associated with a specific job or order. These costs include direct materials, direct labor, and overhead.
The job cost sheet helps businesses record and accumulate the total costs for a particular job. It provides detailed information that can be analyzed to understand the profitability of individual jobs or to identify areas for cost reduction. Each job or order has its own unique cost sheet, which distinguishes job order costing from other costing methods.
3. Aims to Compute the Cost Per Unit of Product
Job order costing is used to determine the cost per unit for products or services that are produced in individual batches or as custom orders. In this system, each job has its own set of costs, and these costs are accumulated separately for each order.
For instance, in a custom printing business, each printing job is tracked individually, and the total costs of the materials, labor, and overhead are divided by the number of units produced to determine the cost per unit. This is a key characteristic of job order costing, as it enables businesses to price and assess the profitability of each job accurately.
4. Use of a Single Work-in-Process Inventory Account
In job order costing, all unfinished jobs or orders are tracked in a single Work in Process (WIP) inventory account. Unlike process costing, where multiple WIP accounts may be used for different stages of production, job order costing simplifies this process by using one WIP account for all jobs in progress.
The WIP account is updated as costs are incurred, and each job is transferred to finished goods once completed. This characteristic ensures that businesses can track the total value of all unfinished work and easily calculate the cost of goods sold when jobs are completed.
5. Identifiable Units of Production
In job order costing, each unit of production is identifiable and tracked individually. This is because the focus is on custom orders or specific jobs, making it easy to assign costs to individual products or services.
For example, in a custom-made clothing business, each garment is considered a unique order with its own set of direct material and labor costs. This characteristic is vital because it allows businesses to evaluate the cost structure of individual jobs and make informed decisions about pricing and profitability.
Summary of Key Differences Between Job Order Costing and Process Costing
Job Order Costing: Applied to industries that produce custom products or jobs, like construction, consulting, or custom manufacturing. Costs are tracked on a per-job basis, and each job has its own job cost sheet.
Process Costing: Used in industries where products are produced in a continuous flow, such as chemicals, food production, and oil refining. It focuses on determining the equivalent units of production and typically uses multiple WIP accounts to track various stages of production.
In Closing
To answer the original question, “Which of the following characteristics does not apply to job order cost accounting?” the correct response is Equivalent units of production. This characteristic is a central concept in process costing and does not apply to the job order costing system.
Understanding the job order cost accounting is crucial for businesses that produce unique products or services. By distinguishing between job order and process costing, businesses can better manage their costs and improve their overall financial performance.
