Differentiate between job costing and process costing

FinanceBanking & FinanceFinance Management

To measure the cost of a product, various cost techniques are used. Job costing is used when goods are produced against only special orders. Process costing is used to determine the cost of each process involved in product making.

Job costing

Job costing determines the cost of each determined job. It is the cost which is involved in specific work or jobs which are performed according to the customer’s needs.

Some of the cases where job costing method is applied are as follows−

  • Jobs are executed according to customer needs.
  • A job requires spate treatment.
  • Each period of work requires different work in progress.

Process costing

Process costing determines the cost of each process that is involved in making a product.

This method is used when similar products are made in huge quantities. This is divided into production made sequentially, selectively or parallel. This method is used for large-scale productions.

Examples − paper, steel etc.

Differences

The major differences between job costing and process costing are as follows−

Sr.NoJob costingProcess costing
1
Cost is calculated based on work performed as per customer requirement/instructions.
Costs are charged to different processes and operations are ascertained.
2
Nature in customised production.
Nature in standardised production.
3
Cost is calculated for each job.
Cost is determined for the overall process and then is spread over the production units.
4
Job is at the cost centre.
Process is at cost centre.
5
No transfer of cost.
Can transfer cost from one process to another process.
6
Each job is identified differently.
No identity because products are manufactured consecutively.
7
Cost ascertainment at completion of job.
Cost ascertainment at the end of cost period.
8
Suitable for products manufactured as per customer requirement.
Useful for companies/industries where mass production is done.
9
Losses are not usually segregated.
Losses are bifurcated.
10
Work-in-progress may or may not exist.
Work-in-progress is always there.
11
Value of work is less.
More value to work.

For unique products, the job costing method is used whereas for standardized products process costing method is used.

If the job size is small then job costing method is used, if job size is large then process costing is used.

Job costing requires more record keeping whereas process costing requires less record keeping.

raja
Published on 05-Jul-2021 12:19:16
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