In units of production, companies use job costing and process costing to collect and allocate costs. Virtually, the two accounting systems have various significant similarities as well as differences. In particular, both systems have the same goal, focused on computing the cost of products (Horngren, Harrison, & Oliver, 2012). Similarly, the two systems apply the same cost flows including production overheads, raw materials, and then transfer the costs to work in progress accounts. In addition to the above, both job costing and process costing adopts predetermined overhead rates.
Apart from similarities, job costing and process costing also has various significant differences. According to Warren, Reeve, & Ducha (2015) job costing involves the detailed accumulation of production costs is attributed to specific units of product. In this case, companies that adopt the job costing accounting system work on different jobs with various production units at each given time. For example, the construction of a building would be accounted for with a job costing system, where the costs of labor and materials used will be recorded on a time sheet and then recorded on a cost sheet. On the other hand, and as Warren et al. elaborate, process costing is more continuous as compared to job costing; it would make no sense trying to identify labor, and material costs for a particular order. In reality, process costing is usually applied to companies making steel, plastic, gasoline, and paint among others. During the operations, accountants accumulate costs for each process or department, which later is used to compile a production report for each category.
Horngre, C., Harrison, W., Oliver, S., Best, P., Fraser, D., Tan, R., & Willet, R. (2012). Accounting. Australia: Pearson Higher Education AU.
Warren, C. S., Reeve, J. M., Duchac, J. (2015). Managerial Accounting. United States: Cengage Learning.
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