Job costing and process costing are the methods of costing used in cost accountancy by the manufacturing company to ascertain various costs associated with the production of goods which in turn results in ascertainment of profits for the company. However there are many differences between the two, let’s look at some of the differences between job costing and process costing –
Job Costing and Process Costing Differences
The first and foremost difference between the two is that while job costing is suitable for those industries where production of goods is undertaken by the company for specific purpose or if the company receives specific job order according to clients requirement whereas process costing is suitable for those products which are homogeneous in nature or for those goods, production of which happen in bulk quantity.
Examples of job costing are software design done by the company for its clients, special machine prepared on order for specific purpose, construction of building done by the builders and so on whereas examples of process costing are oil refinancing, sugar manufacturing, shoes manufacturing or any other product where production of homogeneous products happens in bulk.
Work in Progress
Job costing is not a continuous process because once the job is done there is no need for accounting which in turn implies that it is not necessary that there will be work in progress at the end of financial year whereas process costing is a continuous process as production of homogeneous products keep going on and hence there will be always work in progress both at the beginning and at the end of financial year.
Transfer of Work
In case of job costing there is no transfer of work and cost from one job to another job as production in job costing happen from start to finish so there is no question of transferring work and cost till the job work is completed whereas in case of process costing costs are transferred from one process to another process until the product is fully manufactured.
Ascertainment of Profit
In the case of job costing company can ascertain profit only after the job work is completed, and that job work can be of 1 month or it can be of 1 year whereas in the case of process costing company can ascertain profit at the end of financial year as it is a continuous process.
As one can see from the above that both job costing and process costing are different from each other and both the methods of costing are specific to different industries and situations and hence company should use only that method of costing which is suitable for its products and also industry wide practice of costing should be used so that it can easily compare its own performance with others in the same industry.