Compare and contrast process costing and job order costing.

In job costing the job or product is a distinctly identifiable product or service. Each job requires (or can require) vastly different amounts of input. Job costing is usually associated with products that are unique or heterogeneous. Thus, each job requires different amounts of input, and they can require vastly different amount of costs to finish. Job-costed products tend to be high cost per unit. Thus the costs of each (unique) job are important for planning, pricing, and profitability.

In process costing, the jobs or products are similar (or homogeneous). Each job usually requires the same inputs, and results in approximately the same costs per unit. The cost of a product or service is obtained by assigning total costs to many identical or similar units. We assume each unit receives the same amount of direct material costs, direct manufacturing labour costs, and indirect manufacturing costs. Unit costs are then computed by dividing total costs by the number of units.

The principal difference between process costing and job costing is the extent of averaging used to compute unit costs. As noted above in job costing, individual jobs use different quantities of production resources; whereas in process costing, we assume that each job uses approximately the same amount of resources.

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