14 Apr The Difference Between Job Costing & Process Costing
Job costing & process costing. What is the difference? Four elements differentiate the two. The uniqueness of the product, the size of the job, record keeping, and customer billing. Confused? In this guide, we give clear examples and discuss the difference between job costing & process costing.
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What is job costing?
Job costing allows you to attribute accumulated production costs to specific product units. If you were a custom bicycle manufacturer, for example, you could account for the cost of each piece of the bike through a job costing system.
You can record the labour costs on a timesheet and populate those costs on a cost sheet for that specific job. The metal used in the production of that bicycle is attributed to the same production job. You can then use this information when billing a customer for the work performed and materials used in your production process. Job costing also enables you to accurately track the profit made from the specific job.
The Sage 200 Evolution Job Costing module streamlines this process, making job costing simpler.
What is process costing?
Process costing, on the other hand, involves tracking the costs of producing products that are indistinguishable from each other. These generally have a long production run. If you produced 100 Litres of gas, how would you track how much it cost to produce a single liter of gas?
Through process costing, you would add the cost of the raw materials required for the production of the gas, as well as the labour involved into a cost account, and then divide that by the number of units produced. This will give you the cost of each unit. These costs a generally calculated at a departmental level.
There are four key differentiators between job costing and process costing.
Firstly, the uniqueness of the product. Job costing is ideal for unique products and process costing for standardized products.
Secondly, the size of the job. Job costing is ideal for small production runs and process costing is great for long/large production runs.
Thirdly, record keeping. Job costing requires more record keeping (i.e., time & materials for specific jobs). This is why you need a solution that simplifies the processes. With process costing, costs are aggregated, therefore requiring less record keeping.
Finally, customer billing. Job costing is generally used to bill customers directly as they are the ones who commission the production of the unique product.
Which is better? Well, that clearly depends on the nature of the products you produce. Glad you enjoyed this easy guide to help you understand the difference between Job costing and process costing.
Need help choosing a Job costing solution to streamline your processes? Drop us a line on 011 792 9521, and we’d be glad to guide you in selecting the ideal solution for your unique business requirements.