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Differences between the Job Order Costing and Process Costing Systems

The Article that was chosen for the differences between job costing and process costing can be found in http://keydifferences.com/difference-between-job-costing-and-process-costing.html. The two are elements of cost accounting that are used to calculate the cost of a product. Job costing, on the one hand, is used to calculate the cost of jobs and products that are distinct in nature. Process costing, on the other hand, is a technique that is applied to measure the costs of products which are charged on each stage of the production process. Specifically, job costing is used in the case of special contracts where the customer gives instructions on his/her work order. However, process costing measures the costs incurred on various processes of the production process without necessarily calculating it at every stage of the process.

There are several notable differences between the two cost accounting techniques. Job costing provides a customized list of the production costs as it involves a lot of record keeping done at each level of the production process. However, process costing is used in standardized production where the costs are calculated at the end of the production process by dividing the total cost of product with the total number of units so that the cost per unit can be obtained. Another difference arises with regard to the assignment of cost. In this regard, job costing seeks to measure the cost of each job independently. However, process costing measures first the cost of the whole process then spreads the costs over the total number of units produced. Additionally, the cost center with regard to job costing is in the job done while the job center in the process costing is in the processes leading to the production of a particular product. Specifically, Job costing does not transfer costs to other similar units as the products are unique. However, process costing can transfer cost from one process to the other as the processes are standard. Moreover, each job in job costing has different characteristics that do not change in the production process. This is not the case in process costing as the products are manufactured consecutively hence losing their special identities.

With regard to the suitability of their application, both elements of cost accounting are suitable in different companies due to their distinctive characteristics. In this regard, job costing is appropriate where the production company intends to give the customer an overview of the costs of production at each stage. Process costing, on the other hand, is mostly appropriate where the company intends to know how much it spend in the production of its products. As such, job costing is done after the completion of each phase of the production while process costing is obtained from the calculations done at the end of the production process. More importantly, job costing is critical where the company is involved in the manufacture of products with strict customer instructions. Process costing on the other hand is mostly appropriate where the production is done in huge quantities and the products are similar. Finally, job costing is applied where there is a need for a high degree of supervision. Process costing is, however, used where the products will only be assessed at the end of the production process. However, the two can be applied concurrently is what is termed as the hybrid process of cost accounting.