Question

What are the major differences between job-order costing and process costing systems? Give an example of a well-known company that might use job costing, and an example of a well-known company that might use process costing. Explain why you have chosen the companies that you did.

Answer 1

Differences between Job Order Costing and Process Costing:

1. Meaning: Job Order Costing refers to calculation of costing related to a particular job as per client's requirement. Process costing refers to calculation of costing related to particular process / project.

2. Unique / standard product: Under Job Order Costing, products are unique in nature. Under process costing, products are standard in nature.

3. Industries applicable: Job Order Costing is applicable to companies which produce customized goods as per customer demands. Process costing is applicable to companies which has mass production.

4. Work-in Progress: Under Job Order Costin, WIP may not be available. Under process costing, WIP may be available.

5. Cost Savings: Under Job Order Costing, cost savings are not possible. Under process costing, cost savings are possible.

6. Record Keeping for tasks performed: Under Job Order Costing, record keeping is complex whereas under Process costing, record keeping is easier.

Examples of companies using Job Order Costing & Process Costing:

Job Order Costing: Boeing is a well known example example of an aircraft manufacturer which uses job order costing. It is because the company produces aircrafts as per the specifications of the customers. It tracks the cost of each aircraft it manufactures using job costing approach.

Process Costing: Pepsi is a well known example example of a soft drink manufacturer which uses process costing. It is because the company produces soft drinks as per the standards of production set therein. The products are manufactures as per set process and costing is done at each process for record keeping purpose.