In other words, the former is used to calculate the cost of jobs or contracts which are distinct in nature, while the latter used to compute the cost charged to each process. So, here in this article excerpt, we present all the differences between Job Costing and Process Costing, in a tabular form.
Content: Job Costing Vs Process Costing
- Comparison Chart
- Definition
- Key Differences
- Conclusion
Comparison Chart
| Meaning | Job costing refers to calculating the cost of a special contract, work order where work is performed as per client's or customer's instructions. | A costing method, in which the costs which are charged to various processes and operations is ascertained, is known as Process Costing. |
| Nature | Customized production | Standardized production |
| Assignment of cost | Calculating cost of each job. | First of all, cost is determined for the process, thereafter spread over the produced units. |
| Cost Center | Job | Process |
| Scope of cost reduction | Less | High |
| Transfer of Cost | No transfer | Cost is transferred from one process to another |
| Identity | Each job is different from another. | Products are manufactured consecutively and so they lose their identity. |
| Cost Ascertainment | Completion of the job. | End of the cost period. |
| Industry type | Job costing is suitable for the industries which manufactures products as per customer's order | Process costing is perfect for the industry where mass production is done. |
| Losses | Losses are usually not segregated. | Normal losses are carefully ascertained and abnormal losses are bifurcated. |
| Work-in-progress (WIP) | WIP may or may not exist at the beginning or at the end of the financial year. | WIP will always be present in the beginning or at the end of the accounting period. |
Definition of Job Costing
A method of costing in which cost of each ‘job’ is determined is known as Job Costing. Here job refers to a specific work or assignment or a contract where the work is performed according to the customer’s instructions and requirements. The output of each job consists of normally one or less of units. In this method, each job is considered as a distinct entity, for which cost is ascertained. Job Costing is applied when:
- The execution of the jobs is on the basis of client’s specification.
- All the jobs heterogeneous in many respects and each job require separate treatment.
- There is a difference in WIP (Work in progress), of each period.
Job Costing is best suited for the industries where specialized products are manufactured as per customer needs and demands. Some examples of those industries are Furniture, Ship Building, Printing Press, Interior Decoration, etc.
Definition of Process Costing
A costing technique, which is used to calculate the cost of each process is known as Process Costing. Here process refers to a separate stage where production is performed to convert the raw material into an another identifiable form. Process Costing is used in the industry where identical products are produced in huge quantities.
In Process costing, the plant is divided into some processes where the production is performed either sequentially, parallelly or selectively. The output of the former process becomes the input of the latter process, and at the end, the output of the last process is the final product. The individual process account is prepared for each process.
Process Costing is best suited for large-scale production is done as well as where there are multiple levels of producing a product. Some example of such industries is steel, soap, paper, cold drink, paints, etc.
The following are the major differences between job costing and process costing:
- The costing method which is used for the ascertainment of the cost of each job is known as Job Costing. Conversely, by process costing, we mean the costing technique used to determine the cost of each process.
- Job Costing is performed where the products produced of a specialized nature, whereas Process Costing is used where standardized products are produced.
- In Job Costing, the cost is calculated for each job, but in Process Costing first of all the cost of each process is calculated which is then dispersed over the number of units produced.
- In job costing the cost center is the job itself while the process is the cost center in case of process costing.
- In job costing each job requires special treatment. On the other hand, no such special treatment is required for each process in process costing.
- There is no transfer of cost in job costing, from one job to another. However, the cost of the last process is transferred to the next process in the process costing.
- The possibility of cost reduction is very less in Job Costing. In contrast to Process Costing, the scope of cost reduction is comparatively high.
- In Job Costing, the cost is ascertained after the completion of the job, but in Process Costing, the cost of each job is determined.
- In job costing, losses are not bifurcated. On the contrary, in process costing normal losses are ascertained carefully, while the abnormal losses are bifurcated.
- In job costing, WIP may or may or may not be present at the end of the financial year. As against this, WIP will always be present, irrespective of the quantity, in the beginning, or at the end of the accounting period, in process costing.
Conclusion
There is no comparison between Job Costing and Process Costing because both the methods are used in different industries. Although, the differences exist in the two methods. One such difference is, each job requires a high degree of supervision and control, but the process does not require so, as they are standardized in nature.
June 10, 2022 June 10, 2022/ Steven Bragg
Job costing involves the detailed accumulation of production costs attributable to specific units or groups of units. For example, the construction of a custom-designed piece of furniture would be accounted for with a job costing system. The costs of all labor worked on that specific item of furniture would be recorded on a time sheet and then compiled on a cost sheet for that job. Similarly, any wood or other parts used in the construction of the furniture would be charged to the production job linked to that piece of furniture. This information may then be used to bill the customer for work performed and materials used, or to track the extent of the company's profits on the production job associated with that specific item of furniture.
Process costing involves the accumulation of costs for lengthy production runs involving products that are indistinguishable from each other. For example, the production of 100,000 gallons of gasoline would require that all oil used in the process, as well as all labor in the refinery facility be accumulated into a cost account, and then divided by the number of units produced to arrive at the cost per unit. Costs are likely to be accumulated at the department level, and no lower within the organization.
Job costing and process costing can be used in both manual and computerized accounting environments.
Given these descriptions of job costing and process costing, we can arrive at the following differences between the two costing methodologies:
Uniqueness of Product
Job costing is used for unique products, and process costing is used for standardized products.
Size of Job
Job costing is used for very small production runs, and process costing is used for large production runs.
Record Keeping
Much more record keeping is required for job costing, since time and materials must be charged to specific jobs. Process costing aggregates costs, and so requires less record keeping.
Customer Billing
Job costing is more likely to be used for billings to customers, since it details the exact costs consumed by projects commissioned by customers.
Hybrid Systems
In situations where a company has a mixed production system that produces in large quantities but then customizes the finished product prior to shipment, it is possible to use elements of both the job costing and process costing systems, which is known as a hybrid system.
June 10, 2022/ Steven Bragg/