Job Costing vs Process Costing: Differences, Advantages and Disadvantages

This assignment discusses the differences, advantages and disadvantages of job costing and process costing. It explains the application and use of these techniques in various industries.

MANAGERIAL
ACCOUNTING
ASSIGNMENT

1
By student name
Professor
University
Date: 25 April 2018.
1 | P a g e

2
Contents
Introduction.................................................................................................................................................3
Discussion and analysis................................................................................................................................3
Conclusion...................................................................................................................................................4
References...................................................................................................................................................4
2 | P a g e

3
Introduction
There are various methods of costing which are available to be used depending on the objective of the
entity. Some of the costing techniques include job costing, operation costing process costing, batch
costing, service costing, unit costing and contract costing and even more. The assignment discusses on
the 2 such techniques namely job and process costing, its application and use, the advantages and
disadvantages of these techniques (Goldmann, 2016).
Discussion and analysis
Job costing is a method whereby the costs are identified, collected and accumulated for a given job or
project or the work order. Here the cost for each of the job can be identified and differentiated
separately considering the speciality of each job and the heterogeneous nature. A job card is being
prepared for the accumulation of the cost. This technique is applicable to products like foundries, tool
manufacturers, engineering workshops and printers (Bromwich & Scapens, 2016).
On the other hand, process costing is applied where a large number of similar or homogenous products
are produced using a distinct and well defined processes. In this method, the finished product of one
process becomes the raw material for the next process. Different products with by-products or not are
produced in same process and the units are exactly identical. It is easier to calculate the cost per unit per
process as the total cost of the process needs to be divided by the number of units produced. This is also
known as the average costing as the cost per unit is derived by averaging out the total cost incurred
during a given period for the process (Jefferson, 2017). This costing method is usually used in the textile
industry, paper industry, chemical industry, etc.
Some of the major differences between the 2 methodologies are given below:
1. Use: Job costing is accumulation of the costs of production which can be applied to specific units
whereas the process costing is the cost accumulation for a group of large group of products
which are generally indistinguishable for each other.
2. Product Uniqueness: Process costing has standardized products or large batches of identical
products, whereas job costing has unique products, jobs or projects and those which are
customised (Linden & Freeman, 2017).
3. Job Size: Process costing has large jobs or runs whereas job costing involved small production
jobs.
4. Billing of the customer: job costing is more preferable for billing to customers as it can list out
various components along with the respective costs for a given job.
5. Record keeping: Process costing involves less record keeping as it is averaging out of the total
cost whereas job costing involves more record keeping as time as well as material has to be
charged to a particular job (Choy, 2018).
6. Segregation of losses: in process costing, normal losses are ascertained and abnormal losses are
divided and allocated. On the other hand, in job costing the losses are not segregated at all.
7. Cost reduction: there are minimal avenues of reduction of cost in the job costing whereas the
scope of cost reduction in process costing is much more.
3 | P a g e

4
There are various advantages of job costing like the costs can be evaluated for each job and therefore
proper cost control measures can be implemented. Furthermore the profit for each job can be
determined easily; it also helps in variance and trend analysis and comparison amongst different jobs.
On the other hand, advantage of process costing is that it is simple to use and understand and is
comparatively less expensive. Since the process is standardized, the allocation of the cost is much easier
(Heminway, 2017).
The disadvantage of job costing is that since it is not a standardised process, it needs to be closely
monitored or the chances of leakage through additional costs increases. There is more of clerical work
involved in this and the technique is costly to implement. Furthermore another disadvantage is that the
comparison of the job becomes irrelevant during the period of inflation. On the other hand, the
disadvantage of process costing is that the technique can be applied only to the homogenous group of
products. It ignores the efficiency aspect of the workers and may not give accurate cost of the products
as it is based on averaging.
Conclusion
From the above discussion and analysis, it is clear that both the costing techniques are different and
meant for different types of industries and requirements. Both have their individual advantages and
disadvantages and are to be applied based on the specific needs.
References
Bromwich, M., & Scapens, R. (2016). Management Accounting Research: 25 years on. Management
Accounting Research, 31(1), 1-9.
Choy, Y. K. (2018). Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview
Analysis. Ecological Economics, 3(1), 145. doi:https://doi.org/10.1016/j.ecolecon.2017.08.005
Goldmann, K. (2016). Financial Liquidity and Profitability Management in Practice of Polish Business.
Financial Environment and Business Development, 4(3), 103-112.
Heminway, J. (2017). Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and
Organic Documents. SSRN, 1-35.
Jefferson, M. (2017). Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland .
Technological Forecasting and Social Change, 353-354.
Linden, B., & Freeman, R. (2017). Profit and Other Values: Thick Evaluation in Decision Making. Business
Ethics Quarterly, 27(3), 353-379. Retrieved from https://doi.org/10.1017/beq.2017.1
4 | P a g e

5
5 | P a g e