What is job order costing and how is it similar and different from process costing?

Similarities between Job Order and Process Costing System

Similarities Between Job Order and Process Costing System:

Learning Objectives of this article:

1. What are the differences and similarities in process costing and job order costing procedures.

Similarities between job order costing and process costing systems can be summarized as follows.

1. Both systems have the same basic purposes-to assign material, labor, and overhead costs to products and to provide mechanism for computing unit product cost.

2. Both systems use the same basic manufacturing accountants, including manufacturing overhead, Raw materials, Work in process, and Finished Good.

3. The flow of costs through the manufacturing accounts is basically the same in both systems.

Difference Between Job Order and Process Costing:

The differences between job order costing and process costing arise from two factors. The first is that the flow of units in a process costing system is more or less continuous, and the second is that these units are indistinguishable from one another. Under process costing it makes no sense to try to identify materials, labor, and overhead costs with a particular order from a customer ( as we do with job order costing ), since each order is just one of many that are filled from a continuous flow of virtually identical units from the production line. Under process costing, we accumulate costs by department rather than by order, assign these costs uniformly to all units that pass through the department during a period.

A further difference between the two costing systems is that the job cost sheet is not used in process costing, since the focal point of  process costing is on departments. Instead of using job cost sheet a production report is prepared for each department in which work is done on products. The production report serves several functions. It provides a summary of number of units moving through a department during a period, and it also provides a computation of unit costs. In addition it shows what costs were charged to the department and what disposition was made on these costs. The department production report is a key document in a process costing system.

These differences are summarized below:

You may also be interested in other useful articles from “process costing system – addition of materials and beginning inventory” chapter:

1. Increase in Unit Cost Due to Addition of Materials
2. Addition of Materials – Increase in units and Change is Unit Cost
3. Beginning Work in Process Inventories – Average Costing Method
4. Cost of Production Report FIFO
5. Average Costing Method Versus FIFO Costing Method – Process Costing
6. Difficulties Encountered in Process Costing Procedure
7. Discussion Questions and Answers

8. Similarities and Differences between Job Order and Process Costing System

9. Operation Costing /Hybrid Costing System

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Shamsa