3.1 Overview of job costing and process costing systems
Slide 1
Two common system designs used by both manufacturing and service industries are:
§ Process costing
§ Job costing
Process costing systems are used when a company produces a single homogenous product over long periods of time. Potato chips are a good example of a single homogenous product produced over long periods of time. Each potato chip should be similar to the potato chip manufactured three months from now or a year from now.
Job costing systems are used when different products or services are provided. Custom flower arrangements are good examples of when job costing would be the appropriate costing system.
Slide 2
Some examples where job costing is commonly used:
§ Legal cases
§ Architect plans
§ Roof jobs
§ Catering jobs
§ Maintenance jobs
§ Custom flower arrangements
Slide 3
Some examples where process costing is commonly used:
§ Refining of oil
§ Manufacturing of food products like breakfast cereal
§ Manufacturing of paper
§ Manufacturing of bricks
Slide 4
Both job costing and process costing has similar characteristics. Both assign materials, labor and overhead costs with the goal of calculating unit product cost. Both use the same manufacturing accounts to manage the costs incurred. And both have similar flows of costs through the accounting system.
Slide 5
There are several differences between job costing and process costing. One major difference is that job costing is used when there are several different jobs being undertaken concurrently and process costing produces a single homogenous product over large periods of time. In job costing costs are incurred or gathered per job where as in process costing those costs are gathered at the department level. Job costing’s central document is the job costing sheet. Process costing’s central document is the production report. Unit costs are computed per job in job costing. Unit costs are computed in process costing by department..