A-z About Job Costing

Costing is one of the most basic accounting tasks in managing a manufacturing industry. The price of a finished product, launched by any business is a feature of manufacturing costs. In today’s competitive market, where there are a number of players fighting for a small market share, product price control is one of the main managerial concerns. There are a number of different costing methods used to assess the overall monetary investment in the production of a product. Two prime types include job costing and process costing.

Accounting forms the mainstay of any business, by keeping a tab on every penny or dollar spent, owed or earned. One of the prime objectives, or some would say the only objective of running a business is making profit and it can be maximized through control over manufacturing costs. The profit margin through the selling of any finished product is highly dependent on the fabrication cost.

More About Job Costing

What is job costing? Simply put, it is a means to track the profit and loss on specific jobs or projects for your business. Knowing how profitable or unprofitable your work is will help you make better business decisions when moving forward.

As you can see, job costing can be very helpful for many types of businesses. Figuring out the profitability of a particular project requries you to track several pieces of information.

Information that’s used to identify job profitabilityIn order to properly ‘cost’ your jobs, you will need to get a way to track income and expenses for separate projects. One other note: All costs related to a particular job are also called ‘cost of goods sold’. My choice to track job costs is QuickBooks.

Cost accounting or costing is all about determining the costs of each manufacturing component, including raw material, labor, process running costs, or overhead costs that add up to make the manufacturing price of a product. To make a manufacturing process more efficient and reducing overall expenses, a scrutiny of manufacturing costs in molecular detail is necessary. Two of the main types of costing are job costing and process costing.

At the beginning, let me define what is job costing. It is a cost accounting method wherein the overall cost of manufacturing a product is determined on the basis the job type. It involves the calculation and summing up of raw material cost, labor cost and other expenses involved in the production of a single type of product, to calculate the cost of production per finished product.

It is used in industries which produce multiple types of products in different batches, according to customer requirements. The cost of manufacturing per product is defined by dividing the total job or batch cost, by the number of jobs manufactured. All the data is tabulated in customized job cost sheets.

Process costing is an accounting method used in industries which mass produce identical items in thousands or even millions. Since the product created is the same and the pursuit of manufacturing is the same, there is no reason to account for the price of each job individually. Hence, process costing involves the valuation of the whole process costs. To obtain the price of manufacturing per product, the process cost is divided by the total number of finished products.

Thus the line between the two accounting methods is the fact that job costing calculates price according to finished product, while process costing focuses on the entire processing costs only, as the finished product is the same. It can determine the running costs of each department involved in manufacture, for a given period of time, as the end product cost remains unchanged. Job costing is used when customized products are created that differ in their manufacturing process, on the other hand. Process costing is simpler compared to job costing which needs individual analysis for every job type, owing to the homogeneous nature of products.

The prime difference between the two methods to be remembered is that job costing is best suited for an industry that creates a number of different products, while process costing is ideally suited for industries that mass produce the same element in a large number. If there is diversity in products, it makes sense to calculate expenses through job costing and when an identical product is manufactured, using process costing makes sense.