Job Costing vs. Process Costing: Whats the Difference?

We run into a lot of confusion with many customers who want to know if ourjob costing software is also process costing software. In short, yes, but lets explore the difference between job costing and process costing.

The primary goal of both job costing and process costing in the manufacturing profession is to determine the actual cost per unit. So what’s the difference between job order costing and process costing?

Job Order Costing

This is a method of job costing used by fabricators and manufacturers who produce unique special orders, customized products and even standardized products that are produced in small batches.

Essentially, job order costing is attempting to measure the cost of manufacturing a single unit for a particular job order. It is simple to find the cost per widget. Take the sum of the cost of materials (including unusable scrap), cost of labor and allocated overhead and divide by the number of widgets produced for a particular job order. The math is easy, the tricky part is accurately tracking the material, labor and overhead with efficiency.

Process Costing

Unlike job order costing, process costing is a used by manufacturers who mass produce large quantities of the exact same “widget” in one continuous process flow.

How this differs from job order costing is that for process costing, the cost per unit is accumulated within a specific time period for a specific department. The formula is similar to job order costing. Divide the sum of the cost of material, cost of labor and allocated overhead for a month (arbitrary time frame) by the number of widgets produced within that same month.

Look for the right solution

As you notice, both systems measure costs by finding the sum of the cost of material, cost of labor and allocated overhead. The difference is that job order costing ignores the time variable and measures costs accrued by a particular job order. Process costing measures costs accrued by a particular department for a given period of time.

Dynamic Systems’ JobData Job Costing Software was developed to work for both job order costing and process costing. So rest assured that our solution will work for you.

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image credit: stevendepolo

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