Accounting for Decision Making

Product costing is a form of financial accounting aimed at providing guidance for managers on certain company operations and may not be used to completely rate a company’s performance. Product costing helps identify the costs incurred in production or service and the output realized from the same. It helps determine the cost of a single service or product by analyzing all the resources applied to form the product or the operation costs incurred while delivering a service. Different companies use different methods in determination of product cost according to the nature of goods or services offered. It is an excellent tool for identification of any ways in which production costs can be reduced through adjustments to various stages of production. Product costing may be applied to industries producing a bulk of similar goods such as soap manufacturers. Customer specific industries need product cost calculations for every single job since different customers will have different needs. Thus, product cost involves determination of the resources used to come up with a certain product or deliver a service.

Job costing is a form of product costing applied in areas where customer needs vary. The resources applied to each given job are different and hence there can be no umbrella cost for all jobs. For instance, in the garment manufacturing industry factors affecting cost would be type of fabric, size of fabric used, design, labor and other costs such as electricity, dyes, storage space etc. Every stage of production is a job requiring different resources and has a cost in this case. Job costing differs from product costing in that it is the cost of a specific step in production while product cost is the sum of the cost of the different production stage.



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