Activity and cost system design

  • explain the differences between process and job-order costing.

Imagine that you go out to dinner with a friend. Your limited budget, so you order the cheapest thing on the menu and a glass of ice water. Meanwhile, your friends orders to drinks and appetizer, the first course, in the desert. When it is time to pay the bill, would it make more sense to split the check equally to get a separate bill for each person at the table? Process costing split the bill equally; job order costing makes a separate deal for each person.As it suggests, splitting the bill equally makes sense if both you and your friend had the same menu. It will be a cost-effective way to determine how much each of you should pay without being unfair.Alternatively, with job order costing, the restaurants will keep a separate tab for each customer rather than a tab for the whole table.

There are hybrid systems.Some companies use a hybrid cost system called operation costing, which is a blend of process costing for the common processes and job order costing for the unique components.