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 |