Difference Between Job Costing And Process Costing

Differences between Job Order Costing and Process Costing

Fundamentally, the two polar extremes of product costing are usually labeled job-order costing and process costing. Product costing is an averaging technique. The unit cost used for inventory purposes is the result of dividing some accumulated cost by some measure of production. The basic distinction between job-order costing and process costing is the breadth of the denominator: in job-order costing, it is small; but in process costing it is large. (Horngren, C, 1967).

Job order costing or job costing is a system for assigning costs to an individual product or batches of products. As such, Law firms or accounting firms would use job order costing because every client is different and

An example, Shell a Gasoline production company or any beverage company may use process costing to track its costs to produce its beverages. Process costing involves the accumulation of costs for lengthy production runs involving products that are indistinguishable from each other. For example, the production of 200,000 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 Order Costing (Law Firm) Process Costing (Beverage Company)

1. Many different jobs are worked on during each period, with each job having different production requirements.

2. Costs are accumulated by individual job.

3. Job cost sheet is the key document controlling the accumulation of costs by a

• 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.

Process costing is different from job costing, which is a method used when each customer job is different. Assume, for example, the XYZ Roofing provides each residential client a bid for a roof repair or replacement, and each roof is a different size and will require specific roofing equipment and a unique number of labor hours. The customer bid lists the labor, material and overhead costs for the