Difference Between Job Costing and Process Costing
In case of the Job Costing, costs of the customized or the special contract is calculated where the work is done according to the instructions of the specific client of the company, whereas, in case of the Process costing, the cost charged to a different process of the company is determined.
Job costing is the cost of each job carried during an assignment or project. Whereas, process costing is the total cost of the processes carried out in the entire project.
What is Job Costing?
A method that calculates the cost of every ‘job’ is termed as Job Costing. Job refers to a contact or a project where the work is conducted based on customer’s needs and requirements. The output is normally one unit or less. Each job is considered as an isolated project and a distinct entity for
- Based on the basis of the client’s requirement
- No job is the same and is heterogeneous and each job will have to be done in a manner required to satisfy each job
- The difference in work in progress exists in each period
This is best suited for industries where products are made as per customer’s demands. Examples of these industries are – Furniture, Interior Decoration and Shipbuilding.
What is Process Costing?
A method that calculates the cost of every ‘project; is termed as Process Costing. The process can be defined as a separate stage where the raw material is converted to another form. Process costing is used for industries where a huge volume of similar products is made.
In process costing, the entire process is divided into small processes where the work is performed in a waterfall manner, parallelly or even sequentially. The output of one process is the input for another process and at the end of the processes, the final output or product is created. Individual processes sum up to all the processes
Process costing is suited for large production where there are different levels of producing a product. Examples include soap, paint, cold drinks, snacks
Job Costing vs Process Costing Infographics
The key differences between are as follows –
- In job costing, the cost is calculated after the completion of the job, but in process costing the cost of each job is determined.
- Job costing is used in cases where products produced are unique in nature, and process costing is used for the standardized products produced.
- In a job, casting losses can be segregated, but in the case of later loses are bifurcated on the bases of processes.
- Transfer cost is not considered in job costing when the job is shifted from one assignment to another. In the case of process costing, the cost of the previous processing stage is transferred to the next processing stage.
- There is less scope of reduction of cost in job costing, whereas for the process costing there is a higher scope of reduction of cost.
- Job costing is suitable for industries that design and produce products based on the customer’s Process costing is useful for industries where mass production is possible.
- In job costing WIP may or may not be present, but for process costing WIP may be present at the beginning and end of the period.
- Special treatment is required for each job in job costing; whereas in process costing there is no need for special treatment for each process.
- In job costing each job is different from another, so it has individuality. But, in later, products are produced in large volume and consequently, therefore it does not have individuality.
- In job costing, the time and materials are considered while calculating the cost of the job so record keeping of all these things is an important and tedious task. Whereas, in the process casting the cost is aggregated so record keeping is an easy
- Job costing makes the billing process easier for customers as well as the owners since the details of the exact costs are possible to be specified.
Job vs Process Costing Comparative Table
|Particulars||Job Costing||Process Costing|
|Meaning||Job costing is the cost of a special assignment or contract where work is done based on clients needs and instructions||Process Costing is the cost calculated based on various processes|
|Assignment||Calculating the cost of each job||The cost, in this case, is first determined on the basis of the process and then decided based on the units produced.|
|Cost Calculation Basis||The cost calculation is done based on Job||The cost calculation is done based on Process|
|Reduction in Cost||There are fewer scopes of reduction in costs||There is a higher scope of reduction in costs|
|Cost Transfer||The cost cannot be transferred||The cost can be transferred from one process to another|
|Individuality||Since each job is different from another all the products have their own individuality||Products are produced in large volume and consequently, therefore, they do not have any individuality|
|Industry||This process is suitable for industries that customize products based on customers’ demands.||This process is suitable for industries where mass production is possible|
|Losses||Losses cannot be segregated.||Losses can be bifurcated based on processes.|
|WIP(Work In Progress)||WIP may or may not exist||WIP in this process will always be present in the beginning and at the end of the period.|
|Examples||Furniture, Interior Decoration and Shipbuilding.||soap, paint, cold drinks, snacks.|
|Size of Job||Used for small production units.||Used for large production units.|
|Record Keeping||For job costing record keeping is a tedious task.||For process costing record keeping is an efficient task.|
As job costing and process costing are used in different industries, there cannot be any comparison between them. Although the methods are different, the main difference can be that job costing requires a higher degree of supervision, but process costing does not require so.
There are also situations where a company can have both. For example, a company produces a large amount of quantity but makes changes or customizes the products before sending them to the client or customers. In this case both the elements of costing are used, this is also termed as a hybrid system. Both these processes can be used in manual as well as computerized accounting systems.
This has been a guide to Job Costing vs Process Costing. Here we discuss the top differences between job costing and process costing along with infographics and comparison table. You may also have a look at the following articles –
- Top 4 Examples of Cost Product
- Product Cost | Definition | Types
- Industry Examples of Period Cost
- Difference Between Variable Costing vs Absorption Costing
- What is Absorption Costing?
- Sunk Cost Meaning
- Purchasing vs Procurement – Compare
- Marginal Costing vs Absorption Costing – Compare
- Period Cost vs Product Cost – Differences