ADMS 1000 Lecture Notes - Lecture 12: Paper Towel, Laundry Detergent, Corn FlakesPremium
Course CodeADMS 1000
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ADMS 1000 Lecture 12 Notes – Costing the “quicker-picker-upper”, Comparison of job-order
and process costing and Process cost flows
• If you have ever spilled milk, there is a good chance that you used Bounty paper towels
to clean up the mess.
• Procter & Gamble (P&G) manufactures Bounty in two main processing departments—
Paper Making and Paper Converting.
• In the Paper Making Department, wood pulp is converted into paper and then spooled
into 2,000-pound (900-kg) rolls.
• In the Paper Converting Department, two of the rolls of paper are simultaneously
unwound into a machine that creates a two-ply paper towel that is decorated,
perforated, and embossed to create texture.
• The large sheets of paper towels that emerge from this process are wrapped around a
cylindrical cardboard core measuring eight feet (2.5 m) in length.
• Once enough sheets wrap around the core, the eight-foot roll is cut into individual rolls
of Bounty that are sent down a conveyor to be wrapped, packed, and shipped.
• In this type of manufacturing environment, costs cannot be readily traced to individual
rolls of Bounty
• However, given the homogeneous nature of the product, the total costs incurred in the
Paper Making Department can be spread uniformly across its output of 2,000-pound
rolls of paper.
• Similarly, the total costs incurred in the Paper Converting Department (including the
cost of the 2,000-pound rolls that are transferred in from the Paper Making
Department) can be spread uniformly across the number of cases of Bounty produced.
P&G uses a similar costing approach for many of its products, such as Tide laundry
detergent, Crest toothpaste, and Pringles chips.
• There are two basic costing systems in use
o Job-order costing and process costing.
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• A job-order costing system is used in situations where many different jobs or products
are worked on each period.
• Examples of industries that typically use job-order costing are furniture manufacturers;
special order printers; shipbuilders; and many types of service organizations, such as
repair shops and professional accounting services.
• By contrast, process costing is most commonly used in industries that produce
essentially homogeneous (i.e., uniform) products on a continuous basis, such as bricks,
corn flakes, pop, and paper.
• Process costing is particularly used in companies that convert basic raw materials into
homogeneous products, such as Alcan (aluminum ingots), Kimberly-Clark (toilet paper),
Dover Industries (flour), Imperial Oil (gasoline and lubricating oils), and Christie
• A form of process costing may also be used by utilities that produce gas, water, and
• As suggested by the length of this list, process costing is in very wide use.
Comparison of job-order and process costing
• Much of what you about costing and cost a flow applies equally well to process costing
in this chapter.
• We are not throwing out all that you have learned about costing and starting from
scratch with a whole new system.
• The similarities that exist between job-order and process costing can be summarized as
o Both systems have the same basic purposes—to assign materials, labour, and
overhead costs to products and to provide a mechanism for computing unit
o Both systems use the same basic manufacturing accounts, including
Manufacturing Overhead, Raw Materials, Work in Process, and Finished Goods.
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