Product costing systems are methods used to manage inventories. Accounting systems primarily engage one of three costing systems at a time: job order costing, process-based costing, or activity-based costing.
1.Briefly explain each of the three costing systems in accounting.
2.Discuss the situations in which each system would be best employed by a business.
Whereas job order costing is a system for assigning and accumulating production cost of an individual unit of output usually employed when products are dissimilar from one another, process-based costing is often used where there is large scale production of same product and cost of individual unit production can not be easily ascertained. Besides the two concepts, there also is the activity-based costing that involves the assigning of overhead and incidental cost to associated services and products. These accounting concepts are applied in different situations and circumstances. Job order costing is heavily applied when several products manufactured are satisfactorily different from one another and each has substantial cost, process-based costing is used where there is large production of same product while activity-based costing is usually used when apportioning indirect charge to related products.