Difference between Job Costing and Process Costing
Job costing is used for unique, custom orders, tracking costs per job, while process costing averages costs across continuous, homogeneous production, ideal for mass manufacturing of similar items. Let's understand how these two crucial cost accounting concepts process costing and job costing differ.
Costing methods play an important role in determining a company's profitability and cost-efficiency. Two commonly used costing methods are job costing and process costing. Both are significant cost accounting methods used to calculate the cost of production, but they differ in their approach and application. This article will provide a detailed overview of the differences between job costing and process costing.
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Table of Contents
- Difference Between Job Costing and Process Costing
- What is Job costing?
- What is Process Costing?
- Job Costing and Process Costing: Key Differences
Difference Between Job Costing and Process Costing
| Parameters | Job Costing | Process Costing |
| Meaning | Job costing is used when unique products or services have different production requirements. | Process costing is used when products or services are produced in large quantities and are similar. |
| Production | Customized | Standardized |
| Job Size | Suitable for small production units | Suitable for small production units |
| Work in progress | It may or may not exist | It is always there. |
| Cost reduction | Less scope of cost reduction | High scope of cost reduction |
| Record Keeping | Record keeping is a tedious task | Record keeping is an efficient task |
| Examples | Construction, Interior Decoration, Furniture, and Consulting services | Food and beverage, soap, paint, cold drinks, snacks. |
Another significant difference in Job Costing is with Contract Costing. Curious to learn? Explore Job Costing vs Contract Costing
What is Job costing?
Job costing is a method of tracking the costs associated with producing a specific product or service. This method is commonly used in construction, custom manufacturing, and consulting services. Job costing is also known as “job order costing” or “specific order costing.”
In job costing, costs are assigned to each job or project and tracked based on the job’s requirements. This allows for more accurate cost tracking and helps businesses determine the profitability of each job. Job costing involves classifying costs for a specific job into direct and indirect costs. It also helps businesses identify areas where costs can be reduced and provides more accurate cost information for budgeting and financial reporting purposes.
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What is Process Costing?
Process costing tracks the costs of producing similar products or services in large quantities. This method is commonly used in food and beverage manufacturing, chemical production, and textile manufacturing.
In process costing, costs are assigned to a specific production process and spread evenly across all the products that go through that process. This allows businesses to determine the cost per unit of each product and helps them make decisions about pricing and production levels.
Key Differences: Job Costing and Process Costing
- The job costing is commonly used in construction, custom manufacturing, and consulting services. Process costing is commonly used in food and beverage manufacturing, chemical production, and textile manufacturing.
- In job costing, costs are assigned to individual jobs or projects and tracked based on each job's specific requirements. In process costing, costs are assigned to a specific production process and spread evenly across all the products that go through that process.
- Job costing allows for more accurate cost tracking and helps businesses determine the profitability of each job. Process costing allows businesses to determine the cost per unit of each product and helps them make decisions about pricing and production levels.
- WIP may or may not be present in job costing, but in process costing, WIP may be present at the beginning and end of the period.
- Recordkeeping is essential and tedious in job costing because time and materials are considered when calculating costs. Casting makes recordkeeping easy because the cost is aggregated.
Conclusion
Job costing is used when products or services are unique, and costs are assigned to individual jobs or projects. Process costing is used when products or services are produced in large quantities, and costs are assigned to a specific production process. The selection of the method depends on the project that will take place.
FAQs
What is job costing?
Job costing is a cost accounting method that tracks costs for unique, individual projects or jobs, allowing precise cost measurement for each project.
What is process costing?
Process costing calculates an average cost per unit for homogenous, mass-produced products, spreading costs evenly across all units produced within a specific period.
When is job costing more suitable than process costing?
Job costing is preferred when products or projects vary significantly in terms of cost and production, providing detailed cost information for each unique job.
In which industries is process costing commonly used?
Process costing is often employed in industries with continuous, standardized production processes, such as food production, chemicals, and textiles, where products are similar and produced in large quantities.
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