Job costing can be defined as the detailed cost of production of unique or specialist goods. This costing system is used to account for different or non standard goods that require additional or custom made or design services. The job costing system is often used to determine the,entire expense that was incurred to create the goods or services. This determines the overall price to be charged to the client when profit margins are factored into the cost. Process costing differs from this in that it quantifies the overall cost of production of bulk or general goods. The standardised nature of these types of goods mean that the average cost of production is the same on each specific good. The cost is therefore calculated as a sum total of the entire production process.
Job costing systems can also be incorporated into one off or individualised business transactions. These may include unique combinations of conditions that may apply to one client and not to another. For example, a software for a bank will be distinctively different from the one developed for a hospital or insurance firm. Now each of these products will be seeking to meet different needs and hence, they will incur different costs. The same concept applies to individual construction of homes, catering for different groups of people, manufacture of promotional material amongst others. The cost of production is calculated based on the materials used, cost of the labour as well as the overhead (Fisher & Krumwiede, 2015).
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Process costing sytems may be used in standardized operations. An example is the construction of an estate of houses for sale. Each house will occupy the same dimensions and will follow the same house plan. Since all factors are constant in each home construction, the contractor or construction company will calculate the cost of production in bulk. This will then be divided between the number of units that the company puts up. This is in contrast to custom made homes where each home owner wants different features and functions. Another is the processing of gallons of crude oil. The same process will be used so the cost of production will be the same (Otley, 2016).
Food manufacturers often use process costing in their accounting processes. For example, Coca-Cola Company uses this process to mass produce soft drink products such as Coke, Sprite or Fanta. Manufacturers of standard products such as chewing gum also follow this process. A example is the Wrigley Company. Both this companies follow this procedure. They first quantity the cost of materials used. The companies often attain the procedure by incorporating direct materials such as the raw materials used, and indirect materials such as those used in the processing. Labor cost is then factored in. Overheads such as insurance, land rents, water, electricity and supervision are then included. Process costing is used to account for large productions such as those in Wrigley Company and Coca-Cola.
Job costing is applied in much smaller or short term production units. Boeing, the manufacture of aircraft uses job costing. Each airline order a specific aircraft with certain specifications. Additionally, individual customers want light aircrafts that are suitable to their terrain and purpose of use. This leads Boeing to calculate the exact cost of production based on individual machines. Deloitte and Touche runs a similar system. The company gives accounting services based on consultancy needs. Some companies need streamlining while others need auditing. Their services apply to,companies of all types and sizes and this affects the cost of production (Cooper, 2017).
Both these sytems of costing are necessary in order to determine fair pricing. The processes also aid the organisation to operate comfortably without incurring loss. The record keeping involved in both processes helps the organization adhere to biblical principles of saving and planning. In a nutshell, a company must choose a costing system that seem fair to enough, for both to them and to the clients.
References
Cooper, R. (2017). Target costing and value engineering . Routledge.
Fisher, J. G., & Krumwiede, K. (2015). Product costing systems: finding the right approach. Journal of Corporate Accounting " Finance , 26 (4), 13-21.
Otley, D. (2016). The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, 45-62.
