Different firms adopt different approaches in estimating the difference between revenues and costs of production. Often, manufacturing companies hire services from laborers, whose output brings about a unique product. Therefore, the overall production is the summation of all unique products produced by the different workers.
Job costing, therefore, records the cost and revenues of each service offered by a worker. This is because every production by a worker produces a unique product. Companies use this strategy mostly to compare whether the revenues earned by the unique product produced are higher than the costs to get profits (Drury, 2018). That way, the firm can assess the profitability of its operations. However, the idea is limited to such companies as the manufacturing companies, whereby each service attracts unique cost and the output is unique. Also, the strategy is used by companies to analyze whether the estimated costs were accurate. This idea is useful when the firm budgets for the costs based on approximations (Academy, 2012). Also, the stakeholders use job costing to check whether the estimated costs equaled the actual costs. For instance, the company may realize an increase in cost by 40%. This helps the company to adjust the job costs to maintain the previous profitability. Also, the company may increase the pricing so that they can catch up with the increasing costs.
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Process costing is used mostly by firms whose output is gained from an entire process rather than a single unique service or input (Academy, 2012). This includes a beverage company, whose output is crated from a conveyer belt and a chain of many inputs. So the process output compares the earned revenues against the incurred costs for the entire process. The strategy seeks to check the overall profitability of the entire project, anticipated changes, or the needs to be corrected.
References
Drury, C. (2018). Cost and management accounting . Cengage Learning.
Academy, S. (2012). Chapter 2 How Is Job Costing Used to Track Production Costs? How Is Job Costing Used to Track Production Costs? https://saylordotorg.github.io/text_managerial-accounting/s06-how-is-job-costing-used-to-tra.html
