Job-order costing systems assign costs to individual jobs and is best for when jobs use different mateials, different labor and/or different amounts of overhead resources. Think making movies. Each movie uses different actors, different props and different amounts of travel and setup. So, you would assign costs to each movie, not divide the total cost evenly across all movies. For oatmeal, you would not try to assign costs to each batch of oatmeal because they are all the same.
So, for this firm, are the products all the same or different? For the standard individual chips, a process costing is best since all the chips are the same and so there is no need to assign costs to individual chips.
◦How are the systems different?
As discussed above, job costing assigns direct costs to individual job WIP accounts rather than to one WIP for the month. In job costing, overhead must be assigned to the job. In process costing, overhead is just part of the WIP for the month.
•Describe how the selected system would work to track the costs of the product.
Since we did not select a job cost system, there is little to track except total costs. Direct and indirect costs for the month will be added to WIP. This is an automated production process (look at the small amount of factory (direct) salaries). So, this is mostly materials and indirect cost of running the chip-making machines.
Indirect costs will be applied based on a cost driver and compared to actual at month end. At the end of the month, it would be unlikely that any units would still be “in process” as the machines make the units in bulk batches and you don’t turn off the machine in the middle of a batch. However, there are balances at the end of the period in WIP so this might be a batch that is set up but not yet run (materials already added to factory floor).
•Identify the cost driver, and explain the process of