In a job order cost system, direct labor and factory overhead applied are debited to individual jobs. How are these items treated in a process cost system and why?
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In a process cost system, direct labor and factory overhead applied are not directly debited to individual jobs. Instead, they are accumulated and allocated to all units produced within a department or process.
The reason for this difference in treatment is because process cost systems are used in industries where similar products are produced on a large scale in a continuous production process. These industries include food processing, chemical manufacturing, oil refining, and so on.
In a process cost system, the focus is on the total cost incurred in each department or process, rather than on individual jobs. The costs are assigned to the entire production process and then allocated to the units produced based on an allocation method such as average cost per unit or the number of units produced.
This method of accumulating and allocating costs in a process cost system is necessary because the products being produced are often homogeneous and produced in large quantities. It would be impractical and time-consuming to track the cost of each individual unit or batch. Therefore, a process cost system provides a more efficient and cost-effective way of assigning costs to the large volume of units produced.
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