7 differences between job costing and process costing

We may define job costing as a system of costing in which the elements of cost are accumulated separately for each job or work order undertaken by an organization. Industries which manufacture products or render services against specific orders use job costing or job order method of cost accounting.

Process costing is a form of operations costing which is used where standardized homogeneous goods are produced. This costing method is used in industries like chemicals, textiles, steel, rubber, sugar, shoes, petrol, etc. Process costing is also used in the assembly type of industries also

The type of cost accumulation to be used is determined by the type of manufacturing operations. The differences between the two methods center mainly around how costing is accomplished. The product cost under both methods is ascertained by the averaging process, size of the denominator being different in both the cases. In job costing costs are applied to specific jobs consisting of single or joint units, while process costing is applied to a large number of units.

The key points of distinction between job costing and process costing are:

  • in job costing goods are manufactured only against specific orders while in process costing production is of like units in the continuous flow.
  • In job costing different jobs may or may not have an opening or closing work in progress while in process costing as the production is continuous flow there is always opening and closing balance of work in progress.
  • In job costing different jobs are independent of each other while in process costing production being in a continuous flow, products are intermingled in such a manner that lots are not distinguishable.
  • In job costing cost are accumulated and applied in specific jobs while in process costing costs are accumulated and applied process-wise or department wise
  • In job costing costs are computed after every job is completed while in process costing costs are computed after the expiry of a particular cost period
  • In job costing products are normally not transferred from one job to another except in case of surplus work or excess production while in process costing costs are normally transferred from one process to another, generally the finished product of the process becomes the raw materials of the next process until the goods are completely manufactured.
  • In job costing, from the point of view of managerial control, more attention is needed because production is not in the continuous flow and each job is different. In another hand in process costing, because of the standard, mass, and continuous production, managerial control is easier.

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