The Difference Between Job Costing and Process Costing
When it comes to manufacturing, there are two primary costing methods that a business can use: job costing and process costing. Both methods can help companies to determine the cost of producing a product, but they work differently and apply to different types of manufacturing processes.
Job Costing
Job costing is a cost accounting method that assigns costs to each individual product or project based on the specific materials, labor, and overhead expenses incurred during production. This method is commonly used for businesses that produce unique, custom-made products or provide specialized services like construction or consulting.
In job costing, every project is considered a separate job, and the costs for each job are tracked separately. This allows the manufacturer to determine the exact cost of producing each product or completing each project accurately. The total cost for each job includes all direct and indirect costs associated with completing the project.
Process Costing
Process costing is a cost accounting method that is used when a business produces large quantities of identical or similar products. The total cost of producing these products is divided evenly over the total number of units produced to determine the cost per unit.
Process costing is used in industries like food processing, chemical production, and pharmaceuticals, where products are produced in large quantities with standardized production processes. This method is ideal for businesses that produce a large number of identical products and need to calculate the cost per unit accurately.
The Main Differences
The main differences between job costing and process costing lie in the types of businesses that use them and the nature of their production processes. Job costing works well for businesses that create unique or customized products and have non-standard production processes. Process costing works well for businesses that produce large quantities of standardized products with standardized production processes.
Another key difference is how costs are allocated. In job costing, the costs are directly attributed to the job or project, whereas, in process costing, the costs are allocated evenly across all the units produced.
Final Thoughts
In conclusion, the decision to choose between job costing and process costing depends on the nature of your business and your production processes. As a manufacturer or a service provider, it is crucial to accurately determine the cost of producing your products or services. By understanding the differences between job costing and process costing, you can choose the best costing method that suits your business requirements and helps you to stay profitable.
Table difference between job costing and process costing
| Job Costing | Process Costing |
|---|---|
| Used to determine the cost of a specific product, service or project. | Used to determine the cost of a product that is produced in large quantities or continuously. |
| Costs are accumulated for each job separately. | Costs are accumulated for each process or department. |
| Costs of materials, labor, and other expenses are directly assigned to each job. | Costs are allocated to each process or department based on estimates and averages. |
| Used in industries such as construction, engineering, and custom manufacturing. | Used in industries such as food processing, chemical production, and petroleum refining. |
| The cost per unit is calculated after the job is completed. | The cost per unit is calculated at the end of each accounting period. |