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Job costing involves the detailed accumulation of production costs attributable to specific jobs or groups of jobs. The costs of all materials, labor & other expenses incurred for a particular job would be recorded and then compiled on a cost sheet for that job. This information may then be used to bill the customer for work performed and materials used, or to track the extent of the company's profits on the production job.
Process costing involves the accumulation of costs for lengthy production runs involving products that are indistinguishable from each other. The costs of all materials, labor & other expenses would be accumulated into a Process cost Account, and then divided by the number of units produced to arrive at the cost per unit.
The differences between the above2 costing methods are:
Uniqueness of product:
A job costing system is used by companies that produce unique products or jobs.
A process costing system is used by companies that produce similar or identical units of product employing a consistent process.
Size of job:
Job costing is used for very single/small production run(s), whereas process costing is used for large production runs.
Record keeping:
Much more record keeping is required for job costing, since time and materials must be charged to each job.
Process costing aggregates costs, and so requires less record keeping.
Customer billing:
Job costing is more likely to be used for billings to customers, since it details the exact costs consumed by projects commissioned by customers.
In situations where a company has a mixed production system that produces in large quantities but then customizes the finished product prior to shipment, it is possible to use elements of both the job costing and process costing systems, which is known as a hybrid system.
