What, There's More?
Oh c'mon now, it's not that bad, promise. The absorption method has two main systems. These are called process costing and job costing. Process costing, as explained in Understanding Absorption Costing, is a system most often used to tally the costs associated with producing like units. Basically, if you were to walk into a warehouse, you would not be able to differentiate one unit from the next. Examples include Hoover vacuum bags, Coco Cola, aluminum foil, Saran wrap, and so on.
On the other hand, job costing is a system used to tally the production costs when several different types of units are produced. Examples include clothing, which comes in all shapes, sizes and colors. Think about companies that produce greetings cards or pottery. And of course, remember your friendly neighborhood accountant and her sidekick, the lawyer. Well, we haven't decided if the lawyer is the sidekick or the villain yet, but that's a topic for another day. For now, we'll stick to our two main forms of traditional costing methods. Process costing and job order costing are similar in that they both seek to assign labor, material, and manufacturing overhead costs to products to determine the cost per unit.