Job costing and process costing are primary accounting methods. As a business owner, understanding each one is important to determine which one is suitable for your type of your business.
In this guide, we’ll take you through the definition of job costing and process costing; as well as compare job costing vs process costing.
What is Job Costing?
Job costing is an accounting method designed to help track all the costs and revenue associated with a particular project. Job costing helps you find out the profit or loss of each job by comparing the actual costs with the estimated cost. In addition, proper job costing gives the base for accurately bidding and estimating similar projects in the future.
Job costing involves looking at direct and indirect costs, that are broken down into labor, materials, and overhead.
What is Process Costing?
Process costing is an accounting method that is common in manufacturing industries to track the cost of each stage in the production process. These mass-produced companies have very similar or identical products or units of output and don’t make sense to track costs for each individual unit. After adding up the cost of all steps in the process, they divide the total cost by the number of items to determine the cost per unit.
Difference Between Job Costing vs Process Costing
Job costing and process costing are two of the primary methods of determining the cost of each product. Process costing doesn’t rely on tracing the cost of each individual item throughout the production process, so it’s particularly useful for manufacturing companies that produce in large quantities with identical items.
Consider, for instance, a company that manufactures fabric face masks. The material and labor and costs are incurred as the product moves through production and from one department to another. Because the company makes batches of identical products, or at least highly similar products, the process costing system is easier to track costs for a particular batch of masks.
Job costing, on the other hand, looks at all direct and indirect costs for each item or project. This method is more commonly used by companies that offer custom products or services and each one is not the same.
For example, a construction company that makes custom homes needs to estimate the costs to build each house so it can charge an appropriate amount and track whether each home-building project is profitable.
To resolve the confusion, we’ve made the comparison between job costing vs process costing in the below:
Calculate the cost of each job
Determine the cost of the process and then decide based on the number of units produced
Reduction in Cost
Have fewer scopes of reduction in costs
Have more scopes of reduction in costs
Can not be transferred from each other
Can be transferred from one process to another in process costing
Different between each job
Be produced in high volume
Be best method for industries where products or services are customized based on customer’s demands
Be used by mass production industries with standardized products
Can not be separated
Can be separated
Work in Progress
Not always work in progress
Always work in progress at the beginning and end of a period
Size of Job
Be best for small production units
Be best for larger production units
Be tedious and time-consuming
Keep things streamlined and efficient
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