Similarities and Differences between Job Order Costing and Process Costing
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Similarities and Differences between Job order Costing and Process Costing
The successful management of any business primarily relies on being aware of each product’s costs during decision making. According to the Biblical Narrative in Colossians 1: 16 and Revelation 4: 11, God created everything for his glory and honor (Bible, 2001). Therefore, business managers should always strive to ensure that everything works out per His will, including the cost of products. Job order costing and process costing are the traditional costing methods used to track cost to ensure that it decides the selling prices, measure profits and production efficiency of a given company (Hermason et al., 2016). On the contrary, process costing is an approach used in accounting to track and accumulate the direct costs and assigns indirect costs used in a production process. Process costing often assigns costs to products in batches and may constitute products that have been made for an entire month (Banerjee, 2014). Process costing is the best costing system, especially when a standardized procedure is used in manufacturing duplicate products, making it difficult to measure trace the direct resources, direct labor, and manufacturing overhead costs in a single unit. Therefore, process costing works best when the production of products is done in consignments. The essay analyses the similarities and differences between job order costing and process costing.
Similarities.
One similarity between job order costing and order costing is that all the two systems track the costs related to materials, labor, and overhead in all their products. The assembly process does not vary in both processes hence making it easy to track the costs of every resource used in developing a product (Hermason et al., 2016). Secondly, job order costing and process costing use similar inventory accounts in recording the accounting entries used in production. They both use basic financial records such as materials and work in progress in the case of job costing. Lastly, both job order costing and process costing maintain the production accounts, which are also known as t-accounts. Some of the t-accounts maintained relate to direct resources, labor, and creation overheads.
Differences
One of the main differences between job order costing and process costing relates to their cost. A job cist system is often more costly than a process costing. It is expensive because the cost connected with conveying the individual resources and labor is attached to the product. On the contrary, cost processing is less expensive to maintain and is appropriate when identical products are produced.
The second difference relates to the maintenance of job cost sheets. Job order costing primarily maintains job cost sheets based on individual task cards and time clocks. The job cost sheets are crucial since they help show the particular time a given worker has consumed on their job to lay a foundation for linking labor costs directly to their tasks. However, process costing does not maintain any job cost sheets because production focus in this technique depends on the output from different departments. Process costing mainly emphasizes maintaining the records of individual departments that are run in batches.
Thirdly, Job order costing calculates the costs of each product. Therefore, for every job that is accomplished in a factory, direct costs, including labor and material, are attributed to individual tasks. Conversely, process costing ensures that every process’s costs are calculated and divided based on the total number of units created (Shim & Siegel, 2009).
Conclusion
In conclusion, both job order costing and process costing are traditional methods used to determine different units’ costs. However, they differ in that job order costing is used on individual goods while process costing is employed on products produced in batches. Every company must adopt a costing system that will enable them to run their operations successfully and obtain profit.
References
Bible, H. (2001). Authorized King James Version. London & New York, nd.
Hermason, R., Edwards, J., & Maher, M. (2016). Accounting principles: Managerial accounting.
Shim, J. K., & Siegel, J. G. (2009). Modern cost management & analysis. Barron’s Educational Series