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Where Job Order Costing can be applicable

A cost accounting system should be compatible with the manufacturing environment in which it is used. Job order costing and process costing are two traditional cost accounting systems. Job order costing is used in companies that make a limited quantity of products or provide a limited number of services uniquely tailored to customer specifications. 
 
This system is especially appropriate and useful for many service businesses, such as advertising, legal, and architectural firms. Process costing is appropriate in production situations in which large quantities of homogeneous products are manufactured on a continuous flow basis.

A job order costing system considers the “job” as the cost object for which costs are accumulated. A job can consist of one or more units of output, and job costs are accumulated on a job order cost sheet. 
 
Job order cost sheets for uncompleted jobs serve as the Work in Process Inventory subsidiary ledger. Cost sheets for completed jobs not yet delivered to customers constitute the Finished Goods Inventory subsidiary ledger, and cost sheets for completed and sold jobs compose the Cost of Goods Sold subsidiary ledger.

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