Comparison between Job costing and Process Costing

17/07/2021 0 By indiafreenotes

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 labour 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.

Each job is a project that has its own distinct entity.

  • No job is the same. Each job will have to be done differently to successfully complete it.
  • Based on client requirements or needs.
  • The difference in work in progress exists in each period.

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.

Differences

Assignment: In job costing, it is calculating the cost of each job. In process costing, the cost is first determined by the process and then decided based on the number of units produced.

Production: In job costing, production is customized, while it is standardized in process costing.

Reduction in Cost: With job costing, there are fewer scopes of reduction in costs; the opposite is true with process costing.

Individuality: Because all jobs are different from each other, all products have individuality in job costing. Because process costing means products are produced in high volume, they lack individuality.

Cost Transfer: Costs cannot be transferred in job costing, but can be transferred from one process to another in process costing.

Industry: Job costing is best for industries where products or services are customized based on consumers’ demands. Process costing is best for mass production industries with standardized products.

Work in Progress: With job costing, there may or may not be any work in progress (WIP). With process costing, there is always WIP at the beginning and end of a period.

Losses: In job costing, losses are not separated, but with process costing, losses can be separated.

Record Keeping: For job costing, keeping records is tedious and time-consuming, but process costing keeps things streamlined and efficient.

Size of Job: Job costing is best for small production units, while process costing is best for large production units.