Process Costing and Job Costing: A Comparison

This essay discusses the core concepts of process costing and job costing, their differences, and benefits. It also presents a comparison of both costing methodologies based on their application, record keeping, customer billing, and uniqueness of product.

Management accounting

INTRODUCTION
Job costing consists of a complete accumulation of production cost attributes towards a particular
unit or the collection of units. For example the furniture’s structure of the custom-designed piece
is accounted with the help of job costing system. The details regarding the costs of every labour
that worked at a particular item of furniture are recorded inside a time sheet, and after then it is
accumulated on a cost sheet of that particular job. Though, job order costing is different from
process costing. As manufacturers make use of process costing that produce a wide range of
quantities of the accurate similar ‘widget’ in single continuous process flow (Malmi, 2016).
Present essay revolves around the discussion relating to process costing and job costing in order
to explain core concepts relating to these costing methods.
REASON BEHIND APPLICATION OF JOB COSTING OR PROCESS
COSTING
When companies want to allocate the product costs towards units of output, then the company
adopts the method of process costing. To know about the identical units’ mass production like as
cereal, refreshments and pharmaceuticals, make use of process costing to find out the cost of
every single unit. However, for tracking the costs of mass-produced items, companies use
process costing, and whereas to tracking costs of producing exclusive products, companies make
use of job costing. As per assertions of Kaplan and Atkinson (2015), under job costing method,
Product costs are tied up with specific jobs. Some companies that used the job costing method
include medical services or hospitals, film studios, service oriented and construction companies.
However, in what manner job order costing is different is that for the process costing, the cost of
each unit is accumulated in a definite time period for a particular department. Whereas process is
costing consists of costs’ accumulation for the purpose of wide production and it involves
products that are impossible to differentiate from one another. For instance, cost account
accumulated the production of 100,000 gasoline’s gallons is necessary that is the oil which is
utilized in the process and all labours that are involved in a refinery facility, and divide it by the
number of units produced to reach at a cost per unit. Costs are possibly accumulated at the

department level, and it is no less than inside the organization (Weygandt, Kimmel and Kieso,
2015).
Nevertheless, job costing method is utilized by firms at that time when goods are produced not in
favour of special orders. In contrast, process costing method is used when a single product is
passed by various processes and the output of the first process initially becomes the input of the
subsequent one, and this method is also used to find out the cost of each process.
CORE CONCEPTS OF JOB COSTING AND PROCESS COSTING:
However, it is very easy in process costing to track against detailed record keeping inside job
costing. Labour cost and the material are tracked by each department because of product shifts
through the department. Nevertheless, costs are divided by a number of units for a total of an
average production cost. However, process costing facilitates greater elasticity at that time when
some changes are accomplished in the production process (Vercio, 2018). Managers could be
targeted to processes of specific departments so as to achieve fewer production costs. On the
other hand, companies track profits that occur on the specific jobs under job costing method to
find out the kinds of projects that are most profitable. Subsequent to various projects,
Construction Company finds their profit margins that are higher with hospitality as compared to
healthcare. They select that they concentrate on hospitality projects for the purpose of keeping
higher profit margins during every project. However, managers have to find that which task is
considered as long as compared to approximated or which crews are more productive
(Kampkötter, 2017). With the help of tracking such items, in reality, companies make use of job
costing for making adjustments because it is necessary to projects profitable.
THE CONTRAST AND COMPARISON OF BOTH THE COSTING
METHODOLOGIES ARE PRESENTED AS BELOW IN REGARDS WITH
THEIR BENEFITS AND APPLICATION
 Size of the job: Process costing method is utilized by large production runs whereas job
costing method is used by small production runs (Zahller, 2017).

 Customer billing: Mostly job costing method is used for billing to customers because it
involves the details of the accurate costs that are used by projects commissioned used by
customers.
 The uniqueness of product: Process costing is utilized for the purpose of standardized
products, while for unique products, job costing method is used (Drury, 2013).
 Record keeping: process costing is total costs and then, therefore, less record keeping is
required. In contrast, job costing requires more record keeping because materials and
time should be charged for specific jobs.
The benefits of job order costing is that it permits managers to determine the revenue that is
earned on individual jobs, it helps to find out the specific jobs that are required to follow in near
future. It is suitable for businesses that perform with highly custom work, for example,
construction contractors and experts (Kerzner, 2013). Alternatively, process costing allows
managers to have detailed information regarding production statistics of particular departments.
Moreover, the specified costing provides an advantage to managers to determining the same
quantities within the whole departments and contrast performance on time.
CONCLUSION
It can be concluded from the above discussion that process costing is more appropriate for
constant manufacturing settings, like as servicing companies and factories. On the other hand,
job order costing gives the advantages to managers to maintain track of the performance of team
and individual inside efficiency, cost-control and efficiency.

REFERENCES
Drury, C., (2013). Management and Cost Accounting. Cengage Learning EMEA.
Kampkötter, P. (2017). Performance appraisals and job satisfaction. The International Journal of
Human Resource Management, 28(5), 750-774.
Kaplan, R.S. and Atkinson, A.A. (2015). Advanced management accounting. PHI Learning.
Kerzner, H.R., 2013. Project management: a systems approach to planning, scheduling, and
controlling. John Wiley & Sons.
Malmi, T., (2016). Managerialist studies in management accounting: 1990–2014. Management
Accounting Research, 31, pp.31-44.
Vercio, A. (2018). Process Costing: The Most Important Subject in the Management
Accountant's Curriculum. Journal of Corporate Accounting & Finance, 29(2), 141-150.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting.
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Zahller, K. A. (2017). Truffle in paradise: Job costing for a small business. Journal of
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