Question

Discuss the differences between product costing and job costing. What type of company would general use product costing? What type of company would generally use job costing? Give a real world example of each and explain your reasoning.​

Answer 1

Job costing - Costs are collected and accumulated according to jobs, contract, or projects. It is usually used when a the outcome is a distinct product, and not a standard product. It is also used when the process of manufacturing the product consists of several distinct processes which are undertaken in a sequence to manufacture a final product. (eg. in the apparel industry the processes may be - cutting, stitching, dyeing etc)

Product costing -

Product cost refers to the costs used to create a product. These costs include direct labor, direct materials, consumable production supplies, and factory overhead. Product cost can also be considered the cost of the labor required to deliver a service to a customer. In the latter case, product cost should include all costs related to a service, such as compensation, payroll taxes, and employee benefits.

The cost of a product on a unit basis is typically derived by compiling the costs associated with a batch of units that were produced as a group, and dividing by the number of units manufactured. The calculation is:

(Total direct labor + Total direct materials + Consumable supplies + Total allocated overhead) ÷ Total number of units = Product unit cost

It is generally used when the final product is standard (eg soaps)

Industries -

Job costing - Printing press, hardware, ship-building, repairs, etc.

Product costing - pharmaceutical or drug industries, readymade garment, TVs etc.