Costing Techniques: Difference Between Job Costing And Process Costing

August 13th, 2006 Comments off
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This article discusses the two important costing techniques used in the manufacturing environment for product costing which are Job and Process Costing.

Let’s start with Job costing:

  • which deals with the cost determination of orders or jobs.
  • it is suitable in a production environment where each new order is different from the earlier or succeeding order.

· Examples are

shoe manufacturing-“ requires different specification

garment manufacturing-“ orders differs significantly

vehicle repair shops-” each repairs requires different parts replacement and labor hours

Process costing:

  • determines the cost per unit of product in an environment where IDENTICAL product is produced for all customers;
  • Examples:
  • Automobile assembly line-all cars coming out are identical
  • Electronic assembly line where all products is identical
  • Biscuit manufacturing though has more than one product line, each line is a separate, continuous process producing identical products.

Tabulated below is the contrast between Job and Process Costing

Job Costing

Process Costing

Environment

Suitable in a Batch production

Suitable in a MASS production

Materials

Materials required for job varies from order to order

Materials needed are same for every order leading to bulk purchases opportunity

Direct Labor

Skilled labor varies according to changing specification

Unskilled workers who carry out specific tasks repeatedly which form small part of the production process.

Production runs

Each production run is relatively short as the production is carried out for specific orders.

Big quantities are produced leading to longer production runs

Cost Per unit

Varies from order to order

Remains the same for all orders

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Financial Accounting

 
 

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