Updated July 29, 2023
Difference Between Job Costing vs. Process Costing
The following article provides an outline for Job Costing vs. Process Costing. An order-specific costing technique is used when each product is tailor-made and customized as per customer needs. Job costing incorporates keeping direct and indirect costs in an account. Moreover, both types of costs are related to each other. A job involves a sufficient amount of labor and material that requires a huge source of power, machine time, inspection time, and, apart from that need to supervise them closely. Process Costing is a process by which we determine the cost of each process at every stage of operation, i.e. Process of production. It is a common practice by the manufacturer or industries where a standard product is initially produced and passes into various production phases for transformation into the final product.
Indirect cost is a fraction of the direct cost, which calculates the overall cost of the product. For example, job costing is implemented in constructing a customized machine, structuring a software program, setting up new building construction, and batch production of limited products.
Apart from that, it involves some of the accounting activities as follows:
- Materials: It involves the cost of components and incorporates this cost into the final cost of the components used.
- Labor: The production cost of the product depends upon the specific jobs, and employee charges their time for a specific job.
- Overhead: It calculates the overall cost of the job volume and then applies it to a specific job.
Job costing contains lots of discrete information about each job and costs accountants based on their experience assigned to each job.
Various other features of Process Costing are as follows:
- The industry has many divisions, and each is specific to each operation.
- Each process is a continuous, sequential, and simultaneous operation on each component.
- The output of each process is the input of another operation.
- In the last process, we obtain homogeneous products.
- Both direct and indirect cost applies to it.
- The outcome may result in joint and by-products.
- Losses may happen either normally or abnormally at different stages of production.
- Sequential processes involve the profit at each operation step while not transferring at the cost.
- If the stocks of finished goods remain, which are also expressed similarly to completed units. Its define as
Head-to-Head Comparison Between Job Costing vs. Process Costing (Infographics)
Below is the top 11 difference between Job Costing vs Process Costing
Key Differences Between Job Costing vs. Process Costing
Let us discuss some of the major differences between Job Costing vs. Process Costing:
- Job costing evaluates the cost of the tailor-made component, which is specific to each job. In contrast, process costing is a costing technique that determines each process’s cost.
- Job costing determines the cost of the specific job manufactured to meet the client’s needs. In comparison, Process Costing determines the cost of standard products.
- Each product is dissimilar from others, and it involves different operation processes. Due to this reason, job costing has product-specific pricing. At the same time, process costing is a volume-based costing of jobs produced under a specific set of arrangements which is then dispersed over the number of units produced.
- In job costing, a cost center is a job being prepared, while process costing is in itself a cost center in the case of process costing.
- There is no feature of the transfer of cost available in the job costing for any of the components. However, the cost of the last process is transferable to any subsequential process.
- Minimizing cost in job costing is slightly rare; there is more probability of price deduction.
Job Costing vs. Process Costing Comparison Table
Let’s look at the top 11 Comparisons between Job Costing vs. Process Costing.
|Basis of Comparison||
|Meaning||Job costing calculates the cost of the tailor-made component to meet the client’s specific needs.||Process costing implies charges on operations performed at each stage and ascertain the operations.|
|Nature||Customized or Tailor-made production||Standardized production.|
|Cost Implication||Determine individually based on the operation.||Determined the whole volume of the process and spread over the produced units.|
|Cost Center||The specific unit of production.||Overall process.|
|The scope of Cost Minimization||Negligible, Because it is time-consuming and requires specific resources and high-skill employees.||High. Because it produces components in bulk, a definite set of specific operations on each component minimizes the production cost of operation.|
|Transfer of Cost||Non-transferable.||Transferable from one operation to other operators.|
|Identity||Unique, each component is dissimilar from the others.||Products are sequentially manufactured. Meanwhile, they lose their identity.|
|Cost Ascertainment||At the finished product.||End of the cost period.|
|Industry Type||Job costing is preferable to the job-based production industry, which manufactures products in batches as per customers’ guidelines.||This process is suitable for an industry where we produce jobs in bulk quantity to meet the customer’s needs.|
|Losses||Losses are usually not segregated||Normal losses are unpredictable, while abnormal losses are bifurcated.|
|Work in Progress(WIP)||At the end of the financial year, WIP may exist or may not exist.||WIP is always present at the beginning of the Financial year or the end of the year.|
To conclude, jobs costing and process costing are different from each other. Formal is a job industry based on batches, and the latter is based on products used in mass production industries. And one of the major differences between job costing vs process costing is the job-based process requires high precision and control over the job. Process-based products are produced in mass and require less handling than job-based ones. Another difference is that job-based products are quite expensive and time-consuming, while process-based product is less expensive and have less time to consume to operate.
This has been a guide to Job Costing vs Process Costing. Here we also discuss Job Costing vs Process Costing key differences with the infographics and comparison table. You may also have a look at the following articles to learn more –