Chapter 4, Problem 1RQ

Explain the primary differences between job-order and process costing.

To determine

Explain the primary difference between job-order costing and process costing.

Explanation of Solution

Job order costing: Job order costing is one of the methods of cost accounting under which cost is collected and gathered for each job, work order, or project separately. It is a system by which a factory maintains a separate record of each particular quantity of product that passes through the factory. Job order costing is used when the products produced are significantly different from each other.

Process Costing: It is a method of cost accounting used by an enterprise with processes categorised by continuous production. The cost for manufacturing those products are assigned to the manufacturing department before the averaged over units are being produced.

Explain the primary difference between job-order costing and process costing.

Basis	Job order costing	Process costing system
Work-in-process inventory Transfer of costs	Job order costing contains one work-in-progress inventory account, along with a subsidiary ledger having individual job cost reports for each job Costs are transferred to finished goods inventory account once the jobs are completed under job order costing.	In process costing separate work-in-process inventory account for each department or process. Costs are transferred at the end of the period to the subsequent department for additional processing and, for those products completed; costs are transferred to finishes goods inventory under process costing systems.

Table (1)