Major Differences Between Job-Order Costing and Process-Costing Systems

Major differences between job-order costing and process-costing systems

  • Job order costing refers to the costing method which used to assign manufacturing costs to the individual product or batches of products, whereas, process costing means a costing technique that is used to determine the cost of each process.
  • Job costing is basically performed in a situation where the products produced are of a specialized nature, whereas process costing is applicable where the products produced are standardized (Noreen, Brewer & Garrison, 2011).
  • Job costing involves calculating the cost of each of job, while in process costing the first thing is to calculate the cost of each process which is then dispersed throughout the number of units produced.
  • Job is regarded as the cost center in job costing,while in process costing, process is the cost center.
  • There is special treatment required for each of the processes in process costing, while in job costing a special treatment is required for each job.
  • In job costing, there is no transfer of cost from one job to another, while in the process costing, the cost of last process is transferred to the next process (Noreen, Brewer & Garrison, 2011).
  • There is very less possibility of cost reduction in job costing. In contrast, the scope of cost reduction relatively high in process costing.
  • The cost is determined only after the job is completed, whereas the cost of each job is determined in the process costing.

Example of a well-known company that might use job-order costing, and an example of a well-known company that might use process costing

  • A company that might use job costing is Vertical Roller. As a manufacturing plant, the company incorporate job order costing in order to control usage of its raw materials, labor hours and production equipment. The company considers each customer order as a separate job for the purpose of job order costing. On the other hand, a company like Chevron Corporation use the process costing system. This system helps this petroleum products’ company since it produces identical units of product in batches thereby employing a consistent process,

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