Similarities Between Job-Order and Process

Costing

▪ Both systems assign material, labor and overhead

costs to products and they provide a mechanism

for computing unit product cost.

▪ Both systems use the same manufacturing

accounts, including Manufacturing Overhead, Raw

Materials, Work in Process, and Finished Goods.

▪ The flow of costs through the manufacturing

accounts is basically the same in both systems.

Comparing Job-Order

and Process Costing

Finished

Goods

Cost of

Goods

Sold

Direct Labor

Manufacturing

Overhead

Jobs

Costs are traced and

applied to individual

jobs in a job-order

cost system.

Direct

Materials

Comparing Job-Order

and Process Costing

Finished

Goods

Cost of

Goods

Sold

Direct Labor

Manufacturing

Overhead

Processing

Department

Costs are traced and

applied to departments

in a process cost

system.

Direct

Materials

Differences Between Job-Order and Process

Costing

▪ Process costing is used when a single product is produced on

a continuing basis or for a long period of time. Job-order

costing is used when many different jobs are worked on each

period.

▪ Process costing systems accumulate costs by department.

Job-order costing systems accumulated costs by individual

jobs.

▪ Process costing systems use department production reports to

accumulate costs. Job-order costing systems use job cost

sheets to accumulate costs.

▪ Process costing systems compute unit costs by department.

Job-order costing systems compute unit costs by job.

Process costing is used for products that are:

a. Different and produced continuously.

b. Similar and produced continuously.

c. Individual units produced to customer

specifications.

d. Purchased from vendors.

Quick Check

Process costing is used for products that are:

a. Different and produced continuously.

b. Similar and produced continuously.

c. Individual units produced to customer

specifications.

d. Purchased from vendors.

Quick Check

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Job Costing

Job Costing is a product costing system that

accumulates costs and assigns them to specific

jobs, customers, projects, clients, or contracts

▪ The basic supporting document in a job costing system is

the job-cost sheet, which records and summarizes the

costs of direct materials, direct labor, and factory overhead

for a particular job

▪ A job cost sheet is started when the production or

processing of a job begins

Example Job Cost Sheet

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4-21
Job Costing

▪As a job goes through the production process, all

costs for the job are accumulated on the job-cost

sheet

▪ Upon its completion, overhead is allocated to the job

All the costs that appear on the job-cost sheet

are recorded in the Work-in-Process (WIP)

Inventory account

▪ The total of all the active job cost sheets should equal

the debit side of the WIP Inventory

FLOW OF COSTS IN JOB COSTING

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4-23

All costs recorded on the job cost sheets appear in WIP

Inventory, but the process does not begin there

▪ Direct materials

▪ Direct materials are first recorded in Materials Inventory

▪ A bill of materials, a listing similar to a recipe, is used to decide

the materials needed for a particular project

▪ A request is made with a materials requisition for the supplies

needed for a job

▪ Upon issuance to production, the cost of the materials is then

transferred to WIP Inventory

▪ The materials requisitions are used to record the direct

material costs on the job-cost sheets

▪ Indirect materials, when issued to production, are taken out of

Materials Inventory, but these costs are recorded to Factory

Overhead rather than WIP Inventory