What is the difference between job order cost and process cost
Job order cost and process cost are two different systems used to track and allocate costs in a manufacturing or service-oriented business. The main difference between the two lies in the type of products or services being produced and the way costs are accumulated.
1. Job Order Costing:
- Job order costing is used when a business produces unique or custom-made products or services.
- Costs are accumulated by each individual job or project. Each job has unique characteristics, specifications, and requirements.
- Costs are tracked for every job separately, allowing for a detailed analysis of the cost incurred for each job.
- Examples of industries that typically use job order costing include construction, printing, advertising, and custom manufacturing.
- Job order costing provides more accurate cost information for pricing, bidding, and estimating future jobs.
2. Process Costing:
- Process costing is used when a business produces standardized or homogeneous products or services in large quantities.
- Costs are accumulated by each process or manufacturing stage, rather than by individual jobs.
- Costs are averaged and allocated to each unit produced, resulting in a standard cost per unit.
- Examples of industries that typically use process costing include oil refining, chemical manufacturing, food production, and textile manufacturing.
- Process costing provides a more generalized view of the cost per unit, which is helpful in setting standard prices and analyzing overall efficiency and profitability.
In summary, job order costing is used for unique, customized products or services, tracking costs per job, while process costing is used for standardized, mass-produced products or services, tracking costs per process or manufacturing stage.