THE MAIN DIFFERENCE BETWEEN JOB COSTING AND PROCESS COSTING IS THAT IN JOB COSTING AN AVERAGING PROCESS IS USED TO COMPUTE THE UNIT COSTS OF PRODUCTS OR SERVICES. - JUSTIFICATION

THE MAIN DIFFERENCE BETWEEN JOB COSTING AND PROCESS COSTING IS THAT IN JOB COSTING AN AVERAGING PROCESS IS USED TO COMPUTE THE UNIT COSTS OF PRODUCTS OR SERVICES. - JUSTIFICATION

1. THE MAIN DIFFERENCE BETWEEN JOB COSTING AND PROCESS COSTING
IS THAT IN JOB COSTING AN AVERAGING PROCESS IS USED TO COMPUTE
THE UNIT COSTS OF PRODUCTS OR SERVICES. - JUSTIFICATION
SUBMITTED BY:
HARDIK J. SHAH
ROLL NO. 80
DIV: B

2. 1 Job Costing v/s Process Costing

Contents

Contents .......................................................................................................................1
Job Costing....................................................................................................................2
BOMBARDIER: CUSTOM MANUFACTURING.....................................................................3
Process Costing .............................................................................................................4
Hershey’s Chocolate Hershey Foods Corp........................................................................5
Similarities between Job-Order and Process Costing ........................................................6
Difference between Job-Order and Process Costing .........................................................6
Bibliography ..................................................................................................................8

3. 2 Job Costing v/s Process Costing
Job Costing

 Job Order Costing used by manufacturers who make special orders,
customized products, or standard products produced in batches.
 In this system, the cost object is a unit or multiple units of a distinct product
or service called a job. (Hill)
 Each job uses a different amount of resources.
 The product or service is often a single unit, such as a specialized machine
made at Hitachi, a construction project managed by Bechtel Corporation, a
repair job done at an Audi Service Centre, or an advertising campaign
produced by Saatchi and Saatchi. (ICAI)
 Each special machine made by Hitachi is unique and distinct. An advertising
campaign for one client at Saatchi and Saatchi differs greatly from advertising
campaigns for other clients. (Process Costing)
 Job costing is also used to cost multiple units of a distinct product, such as
the costs incurred by Raytheon Corporation to manufacture multiple units of
the Patriot missile for the U.S. Department of Defense.
 Because the products and services are distinct, job costing systems
accumulate costs separately for each product or service. (Process Costing)
 It is a method of costing which is used when the work is undertaken as per
the customer’s special requirement. When an inquiry is received from the
customer, costs expected to be incurred on the job are estimated and on the
basis of this estimate, a price is quoted to the customer. Actual cost of
materials, labour and overheads are accumulated and on the completion of
job, these actual costs are compared with the quoted price and thus the
profit or loss on it is determined. (Job costing and process costing)

4. 3 Job Costing v/s Process Costing
BOMBARDIER: CUSTOM MANUFACTURING

 In 1942, the Canadian company
L’AutoNeige Bombardier Limitée
began manufacturing tracked
vehicles for snow-covered terrain.
These vehicles were early models of
what later became snowmobiles. In
English, L’Auto-Neige means snow
car. Over time, the company
developed expertise in building
engines and expanded into other
markets such as personal
watercraft, aircraft, subway cars,
buses, and jet boats.
 The company, eventually known as
Bombardier Inc., continued to
expand, often by acquiring existing
companies. For example, it acquired
Canadair (the leading Canadian aircraft manufacturer), Pullman Railcars in the
United States, and an Irish manufacturer of civil and military aircraft and defense
systems.
 In 1990, Bombardier acquired Learjet Corporation, a U.S. manufacturer of
business aircraft. Learjet manufactures high-performance business jets. The jets,
though relatively small, are well-appointed with interiors designed for personal
comfort and convenience. They are often referred to as the limousines of the
skies. These jets are built at Bombardier’s plant in Wichita, Kansas. Models
include the Learjet 31A (light jet), Learjet 45 (super-light jet), and Learjet 60
(midsize jet).
 Bombardier operates Learjet completion centers in Wichita and Tucson, Arizona.
The completion centers provide customized services such as exterior painting and
installation of cabinetry and furniture. Corporate jet customers often order
specialized interiors, including unique fabric, carpet, wood, and color; ergonomic
seating; sound, video, and satellite communication systems; distinctive galleys;
water systems; custom wiring; bulkhead reinforcements; and sound-proofing.
 The center in Wichita completes approximately 120 Learjet 45 aircraft per year.
Different types of work are performed in different areas of the facility. The facility
includes two paint booths, two sand-and-strip areas, four preparation areas, and
an interior mock-up room.

SOURCES: www.aerospace.bombardier.com/ and www.learjet.com.

5. 4 Job Costing v/s Process Costing
Process Costing

 In this system, the cost object is masses of identical or
similar units of a product or service. (ICAI)
 For example,
 Citibank provides the same service to all its customers
when processing customer deposits. Intel provides the
same product to each of its customers. (Hill)
 Customers of Minute Maid all receive the same frozen
orange juice product. In each period, process-costing
systems divide the total costs of producing an identical
or similar product or service by the total number of
units produced to obtain a per-unit cost. This per-unit
cost is the
 Average unit cost that applies to each of the identical or
similar units produced in that period.
 Process Costing used by manufacturers who mass
produce large quantities of identical units in a continuous flow.
 A processing department is an organizational unit where work is performed on
a product and where materials, labor, or overhead costs are added to the
product. For example, a Nalley’s potato chip factory might have three processing
departments—one for preparing potatoes, one for cooking, and one for
inspecting and packaging. (Willey)
 A brick factory might have two processing departments—one for mixing and
molding clay into brick form and one for firing the molded brick. Some products
and services may go through a number of processing departments, while others
may go through only one or two. (Chapter-20-Job-Batch-and-Process-Costing)
 Regardless of the number of processing departments, they all have two essential
features. First, the activity in the processing department is performed uniformly
on all of the units passing through it. (Job costing and process costing)
 Second, the output of the processing department is homogeneous; in other
words, all of the units produced are identical.

6. 5 Job Costing v/s Process Costing
Hershey’s Chocolate Hershey Foods Corp.

The Production Process for Hershey’s Chocolate Hershey Foods Corp. is best known
for its chocolate products, including brands like Almond Joy, Hershey’s Kisses, and
Reese’s. Hershey’s products are sold in more than 90 countries worldwide. According
to Hershey, more than 80 million Kiss-shaped products are made every day!
Several sequential stages of production are required to produce chocolate
at Hershey:

1. Fermentation: Cocoa beans
are placed in large heaps for
one week to allow the cocoa
flavor to develop.

2. Roasting: The cocoa beans are
roasted at very high
temperatures.

3. Hulling: A hulling machine
separates the shell from the
inside of the bean (called
the nib).

4. Milling: The nibs are ground into chocolate liquor (a liquid with a pure
chocolate flavor that contains no alcohol).

5. Mixing: The chocolate liquor is mixed with cocoa butter, sugar, and milk. This
mixture is dried into a brown powder, called chocolate crumb, and processed
into chocolate paste.

6. Molding: Machines are used to fill more than 1,000 molds per minute with
chocolate. The chocolate is then chilled to form solid candy.

7. Packaging: The candy is wrapped, packaged, and ready to be shipped.


Hershey likely uses a process costing system since it produces identical units of
product in batches employing a consistent process. Process costing systems require
the use of work-in-process inventory accounts for each process. Thus Hershey would
track production costs using separate work-in-process inventory accounts for each
stage of production.
Source: Hershey’s, “Home Page,” http://www.hersheys.com.

7. 6 Job Costing v/s Process Costing
Similarities between Job-Order and Process
Costing

1. Both systems determine a product cost by measuring the amount of direct
materials and direct labor used and allocating overhead costs.

2. Both systems allocate overhead using a predetermined overhead rate(s).

3. Both systems maintain perpetual inventory records with subsidiary ledgers
for materials, work in process, and finished goods.
(ICAI)
Difference between Job-Order and Process
Costing

 There are three differences between job-order and process costing.

 First, process costing is used when a company produces a continuous flow of units
that are impossible to differentiate from one another. Job-order costing is used
when a company produces many different jobs that have unique production
requirements.

 Second, under process costing, it makes no sense to try to identify materials,
labor, and overhead costs with a particular customer order (as we did with job-
order costing) because each order is just one of many that are filled from a
continuous flow of virtually identical units from the production line.
 Accordingly, process costing accumulates costs by department (rather than by
order) and assigns these costs uniformly to all units that pass through the
department during a period. Job cost sheets (which we used for job-order costing)
are not used to accumulate costs. (ICAI)



 Third, process costing systems compute unit costs by department. This differs
from job-order costing where unit costs are computed by job on the job cost
sheet. (ICAI)

8. 7 Job Costing v/s Process Costing

Job Order:

Costs are accumulated by job.

Cost to Make One Unit = Cost of the Job _
No. of Units in the Job

Process Costing:

Costs are accumulated by department for a time period (for example, one month).

Department’s Cost
Cost to Make One Unit = for the Month _
in One Department No. of Units Produced
during the Month

To find the total unit cost, add the unit costs incurred in each department. (Job
costing and process costing)

Product Costs
Similarities
Product costs consist of direct materials, direct labor, and manufacturing
overhead.
Differences
Process Costing Job Costing
Product costs are assigned to
departments (or processes).
Product costs are assigned to jobs.
Unit Cost Information
Similarities
Unit cost information is needed by management for decision-making
purposes.
Differences
Process Costing Job Costing
Unit cost information comes from the
departmental production cost report.
Unit cost information comes from
the job cost sheet.
Inventory Accounts
Similarities
Inventory accounts include raw materials inventory, work-in-process
inventory, and finished goods inventory.
Differences
Process Costing Job Costing
Several different work-in-process
inventory accounts are used—one for
each department (or process).
One work-in-process inventory
account is used—job cost sheets
track costs assigned to each job.

9. 8 Job Costing v/s Process Costing
Bibliography
Chapter-20-Job-Batch-and-Process-Costing. In Cost Accountacncy.
Hill, T. M. (n.d.). Cost Accounting. Retrieved from CH 4 Process Costing:
http://highered.mcgraw-hill.comsitesdlfree0078111005878687Chapter04.pdf
ICAI. (n.d.). ICAI. Retrieved from Job Costing & Batch Costing:
www.icai.org_resource_file_19070comp_sugans_pe2_costacc_cp7
Job costing and process costing. (n.d.). Retrieved from Job costing:
www.wps.pearsoncustom.com_wps_media_objects_2426_2484536_ACT104_Ch04
Process Costing. (n.d.). Retrieved from Job Order V/S Process Costing:
http://faculty.mdc.edujhortensACG%202071transparenciesm02.pdf
Willey. (n.d.). Willey Documents. Retrieved from CH 5 Job Costing:
www.wiley.com_college_sc_eldenburg_chap5