PROJECT ON PROCESS COSTING AS A METHOD

OF COMPARISION TO BATCH AND JOB

SANDHYA M. YADAV
ROLL NO: 14-7312

INDEX

Sr.

Particulars

No
1.

Introduction

2.

Process Costing

3.

Job Costing

4.

Distinction Between Process and job Costing

5.

Batch Costing

6.

Distinction Between Batch and Job Costing

7.

Cost Flows

8.

Conclusion

INTRODUCTION
COST ACCOUNTING
The Institute of Cost and Management Accountant, England (ICMA) has defined Cost
Accounting as the process of accounting for the costs from the point at which expenditure
incurred, to the establishment of its ultimate relationship with cost centres and cost units. In its
widest sense, it embraces the preparation of statistical data, the application of cost control
methods and the ascertainment of the profitability of activities carried out or planned.
Cost accounting is a term broader than costing. It covers costing plus the reporting and control
of costs. Thus Cost Accounting = Costing + Cost Reporting + Cost Control. Cost accounting can
be defined as the technique of recording, classification, allocation, reporting and control of costs.
Objectives of cost accounting:
Cost accounting has the following basic aspects or objectives:
1. Costing: It involves the following basic aspects or 5 As:
1. Ascertain costs relating to a particular period,
2. Analyse or classify costs under different heads of accounts such as material,
labour, expenses etc.,
3. Allocate costs fully to the direct expenses or the specific costs such as raw
materials, labour to the relevant products, contracts or processes,
4. Apportion or distribute common costs to each product, contract or process on a
suitable basis and
5. Absorb the total expenses of a department over its products so as to finalise the
cost of each product that is then reported to the management.
2. Cost reporting: Cost reporting has the following aspects:1. What to report or the nature of information to be presented should be relevant and
precise.

2. Whom to report will determine the scope of the report to be submitted to the top
management.
3. When to report daily, weekly, monthly, quarterly or yearly etc.
4. How to report or the format will depend on the factors mentioned above. Once
the cost report is received, management can take action to control the costs.
3. Cost Control: Cost control has been defined by the ICMA as the guidance and regulation
by executive action of the costs of operating an undertaking. Thus cost control means
the control of costs by management. Following are the aspects or stages of cost control.
1. Set targets for cost, production, profits etc. for each period.
2. Measure Actual Performance relating to cost, production profits for the period
concerned.
3. Compare targets with actuals to find out the variations
4. Analyse variations, the causes for variations whether favourable or adverse are to
be investigated. While adverse variations denote wastages and loses, favourable
variations may indicate the targets fixed are very low. In both cases the exact
reasons for the variations are to be known.
5. Take action once the causes are known to eliminate avoidable losses etc.
4. Other aspects: The other aspects or objectives of cost accounting are as follows:
1. Provide required data for fixing sales price for submitting tenders, quotations etc.
2. Assist the management in controlling inventory for raw materials, goods in
process, finished goods, spares and consumables etc.
3. Advice management on future policies regarding expansion, growth, capital
investment etc.
4. Install labour incentive system for getting maximum productivity from labour at
optimum cost.

5. Advice management in deciding optimum product-mix, merits and demerits of

alternative courses of actions (make or buy etc.,) introduction of automation,
mechanization, rationalization of system of production etc.

Thus the objectives can be summarized as follows:

1. Ascertainment of costs
2. Estimation of costs
3. Cost control
4. Cost reduction
5. Determining selling price
6. Facilitating preparation of financial and other statements
7. Providing basis for operating policy

PROCESS COSTING
Process costing is a form of operations costing which is used where standardized homogeneous
goods are produced. This costing method is used in industries like chemicals, textiles, steel,
rubber, sugar, shoes, petrol etc. Process costing is also used in the assembly type of industries
also. It is assumed in process costing that the average cost presents the cost per unit. Cost of
production during a particular period is divided by the number of units
produced during that period to arrive at the cost per unit.Process costing is an accounting
methodology that traces and accumulates direct costs, and allocates indirect costs of a
manufacturing process. Costs are assigned to products, usually in a large batch, which might
include an entire month's production. Eventually, costs have to be allocated to individual units of
product. It assigns average costs to each unit, and is the opposite extreme of Job costing which
attempts to measure individual costs of production of each unit. Process costing is usually a
significant chapter. it is a method of assigning costs to units of production in companies
producing large quantities of homogeneous products.
Process costing is a type of operation costing which is used to ascertain the cost of a product at
each process or stage of manufacture. CIMA defines process costing as "The costing method
applicable where goods or services result from a sequence of continuous or repetitive operations
or processes. Costs are averaged over the units produced during the period". Process costing is
suitable for industries producing homogeneous products and where production is a continuous
flow. A process can be referred to as the sub-unit of an organization specifically defined for cost
collection purpose.

MEANING OF PROCESS COSTING

Process costing is a method of costing under which all costs are accumulated for each stage of
production or process, and the cost per unit of product is ascertained at each stage of production
by dividing the cost of each process by the normal output of that process.

Definition:
CIMA London defines process costing as that form of operation costing which applies where
standardize goods are produced

Features of Process Costing:

(a) The production is continuous
(b) The product is homogeneous
(c) The process is standardized
(d) Output of one process become raw material of another process
(e) The output of the last process is transferred to finished stock
(f) Costs are collected process-wise
(g) Both direct and indirect costs are accumulated in each process
(h) If there is a stock of semi-finished goods, it is expressed in terms of equalent units

(i) The total cost of each process is divided by the normal output of that process to find out cost
per unit of that process.

Advantages of process costing:

1. Costs are be computed periodically at the end of a particular period
2. It is simple and involves less clerical work that job costing
3. It is easy to allocate the expenses to processes in order to have accurate costs.
4. Use of standard costing systems in very effective in process costing situations.
5. Process costing helps in preparation of tender, quotations
6. Since cost data is available for each process, operation and department, good managerial
control is possible.

The importance of process costing

Costing is an important process that many companies engage in to keep track of where their
money is being spent in the production and distribution processes. Understanding these costs is
the first step in being able to control them. It is very important that a company chooses the
appropriate type of costing system for their product type and industry. One type of costing
system that is used in certain industries is process costing that varies from other types of costing
(such as job costing) in some ways. In process costing unit costs are more like averages, the
process-costing system requires less bookkeeping than does a job-order costing system. Thus,
some companies often prefer to use the process-costing system.

When process costing is applied?

Process costing is appropriate for companies that produce a continuous mass of like units
through series of operations or process. Also, when one order does not affect the production
process and a standardization of the process and product exists. However, if there are significant
differences among the costs of various products, a process costing system would not provide
adequate product-cost information. Costing is generally used in such industries such as
petroleum, coal mining, chemicals, textiles, paper, plastic, glass, and food.

Reasons for use

Companies need to allocate total product costs to units of product for the following reasons:

A company may manufacture thousands or millions of units of product in a given period

of time.

Products are manufactured in large quantities, but products may be sold in small
quantities, sometimes one at a time (automobiles, loaves of bread), a dozen or two at a
time (eggs, cookies), etc.

Product costs must be transferred from Finished Goods to Cost of Goods Sold as sales are
made. This requires a correct and accurate accounting of product costs per unit, to have a
proper matching of product costs against related sales revenue.

Managers need to maintain cost control over the manufacturing process. Process costing
provides managers with feedback that can be used to compare similar product costs from
one month to the next, keeping costs in line with projected manufacturing budgets.

A fraction-of-a-cent cost change can represent a large dollar change in

overall profitability, when selling millions of units of product a month. Managers must
carefully watch per unit costs on a daily basis through the production process, while at
the same time dealing with materials and output in huge quantities.

Materials part way through a process (e.g. chemicals) might need to be given a value,
process costing allows for this. By determining what cost the part processed material has
incurred such as labor or overhead an "equivalent unit" relative to the value of a finished
process can be calculated.

Process cost procedures

There are four basic steps in accounting for Process cost:

Summarize the flow of physical units of output.

Compute output in terms of equivalent units.

Summarize total costs to account for and Compute equivalent unit costs.

Assign total costs to units completed and to units in ending work in process inventory.

The journal entries for process costing are the same as those for job-order costing with one
exception. The entry to transfer cost from one work-in-process account to another is:
Work-in-process inventory-second department Debit (Left)
Work-in-process-first department Credit (Right)
Limitations:
1. Cost obtained at each process is only historical cost and are not very useful for effective
control.
2. Process costing is based on average cost method, which is not that suitable for performance
analysis, evaluation and managerial control.
3. Work-in-progress is generally done on estimated basis which leads to inaccuracy in total cost
calculations.

4. The computation of average cost is more difficult in those cases where more than one type of
products is manufactured and a division of the cost element is necessary.
5. Where different products arise in the same process and common costs are prorated to various
costs units. Such individual products costs may be taken as only approximation and hence not
reliable.

Process Losses:
In many process, some loss is inevitable. Certain production techniques are of such a nature that
some loss is inherent to the production. Wastages of material, evaporation of material is un
avoidable in some process. But sometimes the Losses are also occurring due to negligence of
Labourer, poor quality raw material, poor technology etc. These are normally called as avoidable
losses. Basically process losses are classified into two categories
(a) Normal Loss (b) Abnormal Loss

1. Normal Loss:
Normal loss is an unavoidable loss which occurs due to the inherent nature of the materials and
production process under normal conditions. It is normally estimated on the basis of past
experience of the industry. It may be in the form of normal wastage, normal scrap, normal
spoilage, and normal defectiveness. It may occur at any time of the process. No of units of
normal loss: Input x Expected percentage of Normal Loss. The cost of normal loss is a process. If
the normal loss units can be sold as a crap then the sale value is credited with process account. If
some rectification is required before the sale of the normal loss, then debit that cost in the
process account. After adjusting the normal loss the cost per unit is calculates with the help of the
following formula:
Cost of good unit:

Total cost increased Sale Value of Scrap

Input Normal Loss units
Abnormal Loss:
Any loss caused by unexpected abnormal conditions such as plant breakdown, substandard
material, carelessness, accident etc. such losses are in excess of pre-determined normal losses.
This loss is basically avoidable. Thus abnormal losses arrive when actual losses are more than
expected losses. The units of abnormal losses in calculated as under:
Abnormal Losses = Actual Loss Normal Loss

Total Cost increase Scrap Value of normal Loss x Units of abnormal loss
Input units Normal Loss Units

Abnormal Gains:
The margin allowed for normal loss is an estimate (i.e. on the basis of expectation in process
industries in normal conditions) and slight differences are bound to occur between the actual
output of a process and that anticipates. This difference may be positive or negative. If it is
negative it is called ad abnormal Loss and if it is positive it is Abnormal gain i.e. if the actual loss
is less than the normal loss then it is called as abnormal gain. The value of the abnormal gain
calculated in the similar manner of abnormal loss.
The formula used for abnormal gain is:

Abnormal Gain
Total Cost incurred Scrap Value of Normal Loss x Abnormal Gain Unites
Input units Normal Loss Units

JOB COSTING
In case of special-order concerns products produced or jobs undertaken are of diverse nature.
They involve materials and labour in different quantities and entail different amounts of
overhead costs. In such concerns it is necessary to keep a separate record of each lot of products
or jobs from the time the work on the job or product begins till it is completed. A separate job
card or sheet is maintained for each job or product in which all expenses of materials, labour,
overheads are entered and cost of completing a job or manufacturing a product is found out.
Such a cost system is known as job or terminal or specific costing.

Objectives of job costing:

1. It helps in finding out the cost of production of every order and thus helps in ascertaining
profit or loss made out on its execution. The management can judge the profitability of
each job and decide its future courses of action.
2. It helps management in making more accurate estimates about the costs of similar jobs to
be executed in future on the basis of past records. The management can conveniently and
accurately determine and quote prices for orders of a similar nature which are in prospect.
3. It enables management to control operational inefficiency by comparing actual costs with
the estimated ones.
The tenn Job Costing may be defines as "in job costing, costs are collected and accumulated
according to jobs, contracts, products or work orders. Each job is treated as a separat~ entity for
the purpose of costing. The material and labour costs are complied through the respective
abstracts and overheads are charged on predetennined basis to arrive at the total cost."

Features of Job Order Costing

Some of the important features of this method of costing are given below:
(1) Works or production are undertaken against the order of customers.
(2) Production is not as a continuous process because each job is accepted by work order basis
not
for stock or future sales.
(3) Each job is treated as a separate entity for the purpose of costing.
(4) There is no unifonnity in the flow of production because of different production process.
(5) Costs are collected and accumulated after the completion of each job or products in order to
find out profit or loss on each job.
(6) The jobs differ from each other requiring separate work in progress maintained for each job.

A system of job costing should be adopted after considering the following two factors.

1. Each order or job should be continuously identifiable from the raw material stage to the
stage of completion.
2. The system is very expensive because it requires a lot of clerical work in estimating costs,
designing and scheduling of production. It should, therefore, be adopted when absolutely
warranted.
Profit or loss on a job can also be found out by preparing a job account. The job account is
debited with all expenses incurred on the job and is credited with the job price. The difference of
the two sides will be the profit or loss made or suffered on the job.
1. Work-in-process: The account is maintained in the cost ledger and it represents the jobs
under production. The account may be maintained in any of the following two ways
depending upon the requirements of the business:
1. A composite work-in-process account for the entire factory.
2. A composite work-in-process account for every department. For example, if the
factory has three departments A, B and C, a work-in-process for each of these
three departments will be opened.
The work-in-process account is periodically debited with all costs direct and indirect incurred in
execution of the jobs. At intervals of month or so a summary of completed jobs is prepared and
the work-in-process account is credited with the cost of completed jobs. In case work-in-progress
account for each department of the factory has been opened, it will be necessary to find out the
cost of completed jobs regarding each department. The balance in work-in-process account at
any time represents the cost of jobs not yet completed.
Job costing is a form of specific order costing. It is used where there is a specific customer order
which is unique to that customer determines the work to be done. As such orders are specific to
the requirement of the customer, production is carried out in accordance with the special
requirements of each customer. It is therefore usual for each job to differ in one or more respects
from every other job, which means that a separate record (a job card) must be maintained to
show the details of each particular job.

In job costing, the customer's order is effectively the cost unit and the requirement of the method
is to identify the costs incurred in completing that customer's order.

How this is typically done in a job-costing organisation:

The customer approaches the supplier and indicates what she requires.

The supplier discusses the order with the customer and agrees with her the precise details
of the items to be supplied. This includes the quantity, quality, size and colour of the
goods, the date of delivery and any special requirements.

The supplier prepares an estimate for the job, based on:

o the number of hours of direct labour and the expected rate;
o the quantity of material to be used and its price;
o any direct expenses;
o an appropriate amount for production, administration and selling and distribution
overheads; and
o the supplier's profit margin.

Once the customer accepts the quotation, the necessary documentation is sent to the
various departments to ensure that the job progresses through the factory without delays
and is completed at the due time.

Examples of businesses that would use job costing include:

Construction

Aeroplane manufacturing

Landscape gardening

Vehicle repairs

Bespoke furniture

Job costing is a form of specific order costing and it is used when a customer orders a specific
job to be done. Each job is priced separately and each job is unique.

The main aim of job costing is to identify the costs associated with completing the order
and to record them carefully.

Individual jobs are given a unique job number and the costs involved in completing the
job are recorded on a job cost sheet or job card.

The selling prices of jobs are calculated by adding a certain amount of profit to the cost
of the job.

To determine the cost involves the following:

identifying the cost of materials used for the job

identifying the cost of labour used on the job

absorbing overheads

Advantages of job costing:

1. Job costing enables the management to identify spoiled and defective work in respect to
particular production orders, departments or groups of workers and hence the
management can fix up responsibility for inefficiency.
2. Management can determine the trends in costs and compare the operating efficiency of
men and machines in each cost centre. It can also determine the completion cost of each
job.
3. It enables the preparation of estimates of costs of jobs before production.
4. It enables comparison of estimated costs with actual costs as the costs are analysed on the
basis of costs, services and production.
5. It makes available to the management a complete file of production orders which
contains valuable statistics on cost.
6. It enables ascertainment of profit or loss on each job immediately after their completion.
7. It enables the management to identify unprofitable jobs.
8. In case of cost plus contracts, job costing enables to provide precise quotations.
9. It helps in production planning.
10. It facilitates fixation of selling price.

Limitations of job costing:

1. Job costing involves a lot of clerical work in identifying materials, labour and overheads
with specific jobs and departments.
2. Management cannot evaluate precisely the operating efficiency of men and machines.
3. Since costs ascertained and compiled are historical costs, they are not of much utility to
the management.
4. It does not apply budgetary control to important cost elements such as labour, materials
and overheads.
5. Job costs over any period of time cannot be compared if major economic changes take
place in between.
6. It is expensive to operate and errors are possible due to increased clerical work.

DISTINCTION BETWEEN JOB COSTING AND PROCESS COSTING

Job order costing and process costing are two different systems. Both the systems are used for
cost calculation and attachment of cost to each unit completed, but both the systems are suitable
in different situations. The basic difference between job costing and process costing are

Basis of

Job order costing

Process costing

Distinction
1.

Specific order

Performed against specific orders

Production is contentious

2.

Nature

Each job many be different.

Product is homogeneous and

standardized

3.

Cost determination

Cost is determined for each job

Costs are complied for each

separately

process for department on time

basis i.e. for a given accounting
period.

4.

5.

6.

7.

8.

Cost calculations

Control

Transfer

Work-in-Progress

Suitability

Cost is complied when

Cost is calculated at the end of

a job is completed.

the cost period.

Proper control is comparatively

Proper control is comparatively

difficult as each product unit is

easier as the production is

different and the production is

standardized and is more

not continuous

suitable.

There is usually not transfer from

The output of one process is

one job to another unless there is

transferred to another process as

some surplus work

input.

There may or may not

There is always some work-in-

be work-in-progress.

progress because of continuous

industries where production is

production

intermittent and customer orders

can be identified
value of production.

Suitable, where goods are made

for stock and productions is
continuous.

BATCH COSTING
Batch costing is a modified form of job costing. While job costing is concerned with costing of
jobs that are executed against specific orders of the customers, batch costing is used where
articles are manufactured in definite batches. The articles are usually kept in stock for selling to
customers on demand. The term batch refers to the lot in which the articles are to be
manufactured. Whenever a particular product is required, one unit of such product is not
produced but a lot of say 500 or 1000 units of such product are produced. It is therefore also
known as Lot Costing. This method of costing is used in case of pharmaceutical or drug
industries, ready-made garment factories, industries manufacturing component parts of radio
sets, television sets, watches, etc.
The costing procedure for batch costing is similar to that under job costing except with the
difference that a batch becomes the cost unit instead of a job. Separate job cost sheets are
maintained for each batch of products. Each batch is allotted a number. Material requisitions are
prepared batchwise, the direct labour is engaged batchwise and the overheads are also recovered
batchwise. Cost per unit is ascertained by dividing the total cost of a batch by number of items
produced in that batch. Ordinary principles of inventory control are used. Production orders are
issued only when the stock of finished goods reaches the ordering level. In case the batches are
repetitive, the costing work is much simplified.
Since in batch costing production is done in batches and each batch consists of a number of units,
the determination of optimum quantity to constitute an economical batch is all the more
important. Such a quantity can be fixed on the basis of same formulae and principles as are
applicable to economic order quantity of materials.
Batch costing is a form of specific order costing which applies where a quantity of identical
items are manufactured as a unique batch. In a similar way to job costing, batch costing is used
in situations where a specific customer order determines the work to be done. However, job
costing is for situations where a single cost unit is being made (e.g. a single item of bespoke
furniture), whereas batch costing is used where a unique batch consists of identical items (e.g. a
printing company producing a bespoke batch of 1000 identical A4 adverts).

FEATURES OF BATCH COSTING:

Reduces overall cost of the product if components are manufactured in batches of large

quantity.
Costs are collected against each batch
The Form of specific order costing which applies where similar articles are

manufactured in batches either for sale or fopr use within the company
This system to be utilized when a firm manufacture products in readily identifiable

batches or definite lots.

A batch is a cost unit which consist of a group of similar articles, which maintain its

identity throughout one or more stages of production

A form of costing which applies where quantity of identical products are manufactured as

a batch
Occurs when customer orders a quantity of identical items or when an internal
manufacturing order is raised for a batch of identical parts, subassemblies or product to

replenish stocks
On completion of the batch the cost per unit can be calculated by dividing the total batch
cost by the number of good units produced

Two typical situations in which batch costing would be used are:

where a customer orders a quantity of identical items; or

where an internal manufacturing order is raised for a batch of identical parts.

In Batch Costing, a lot of similar units which comprise the batch may be used as a cost unit for

ascertainment of cost. Separate Cost Sheet is maintained for each batch by assigning a batch
number. Cost per unit of product is determined by dividing the total cost of a batch by the
number of units of that batch.
Batch costing is used in number drug industries, ready made garment industries, electronic
components manufacture, TV sets, radio etc.
In general the procedures for costing batches are very similar to costing jobs. The batch would be
treated as a job during manufacture. On completion of the batch the cost per unit can be
calculated by dividing the total batch cost by the number of good units produced.
Examples of products that are best accounted for cost through batch costing include:

Production of engineering components

Radios/television sets

Medicine

Footwear

Clothing manufacturer

The costs included in the batch cost are direct costs of material, labour and direct expenses plus
overheads absorbed into the batch.

Batch costing is used for calculating total cost of each batch. Batch is small group of units which
is produced for production purposes. We also identify batch of units in our production. All raw
material is supplied on batch basis and other expenses are also paid on the basis of each batch.
For instance, in the drugs industry, producer will make the batch of tablets instead of producing
single tablet. This will be easy to sell that batch in market. So, calculating cost of each batch, we
will calculate material cost per batch, labour cost per batch and other expenses per batch. If we
want to calculate cost per unit, we have to divide total batch cost with total batch units.

Determination of Economic Batch Quantity (EBQ)

Determination of economic batch lot is the important work in batch costing. The two types of
costs involved in batch costing are (1) Set up cost and (2) Carrying cost.
If the batch size is increased. set up cost per unit will come down and the carrying cost will
increase. It the batch size is reduced. set up cost per unit will increase and the carrying cost will
come down. Economic Batch Quantity will balance these two opposing costs.

Batch costing is a form of specific order costing. It is very similar to job costing.

Within each batch are a number of identical units but each batch will be different.

Each batch is a separately identifiable cost unit which is given a batch number in the
same way that each job is given a job number.

Costs can then be identified against each batch number. For example materials
requisitions will be coded to a batch number to ensure that the cost of materials used is
charged to the correct batch.

When the batch is completed the unit cost of individual items in the batch is found by
dividing the total batch cost by the number of items in the batch.

Batch costing is very common in the engineering component industry, footwear and
clothing manufacturing industries.

The selling prices of batches are calculated in the same ways as the selling prices of jobs,
i.e. by adding a profit to the cost of the batch.

1.

2.

3.

JOB COSTING

BATCH COSTING

Costs are collected and accumulated

Lot of similar units which comprise the

according to Jobs, Contracts or Work

batch may be used as a cost unit for

Order.

ascertainment of cost.

Each job is treated as a separate entity for

Separate cost sheet is maintained for each

the purpose of costing.

batch by assigning a batch number.

The materials and labour costs are

Separate cost sheet is maintained for each

complied through the respective abstracts

batch by assigning a batch manner.

and overheads are charged on

predetermined basis.
4.

Costs are found out at the stage of

Cost per unit of product is determined by

completion of the job.

dividing the total cost of a batch by the

number of units of that batch

5.

Job costing is used in Printing, Furniture

Job costing is used in Printing, Furniture

making, Ship Building etc.

making, Ship Building etc.

Cost flows:

CONCLUSION

1. Applicability
Process costing is applied to ascertain the cost of standardized products produced in mass.
So, naturally, materials, labor and other facilities remain indifferent. Job costing is applied to
ascertain the cost of a specific order received. The quality and quantity of materials and
labor and other facilities between jobs vary.

2. Cost Collection
Process costing accumulates manufacturing costs for departments or processes. Job costing
uses cost sheet and accumulates manufacturing costs for each job or batch separately.

3. Time Period
Process costing has a time frame of certain months or years for which costs are
accumulated. Job costing has no time frame. It ends after the completion of a particular job
so that costs are accumulated for each job.

4. Unit Cost Ascertainment

Process costing divides total departmental process costs by the departmental process output
to derive the unit cost. Job costing obtains unit cost by dividing the total cost of the job by
the job order units.

5. Job costing is used when the cost object is an individual (or a lot/batch) unit of a distinct
product or service. Process costing is generally used for a mass of identical product or
service.

6. Costs in job costing, can be accumulated by each individual product or service. The cost

in process costing, are accumulated in a period. The total costs in a period are divided
over the number of units to get an average unit cost.
7. Batch costing is a specific order costing which applies where similar articles are
manufactured in batches (either for sale or for use within the undertaking).
8. Batch costing are in mass production, All units has same general features. Costs
measured for individual unit.
9. Job costing (known by some as job order costing) is fundamental to managerial
accounting. It differs from Process costing in that the flow of costs is tracked by job or
batch instead of by process.
The distinction between job costing and process costing hinges on the nature of the
product and, therefore, on the type of production process:
10. Process costing is used when the products are more homogeneous in nature. Conversely,
job costing systems assign costs to distinct production jobs that are significantly different.
An average cost per unit of product is then calculated for each job.

11. Process costing systems assign costs to one or more production processes. Because all
units are identical or very similar, average costs for each unit of product are calculated by
dividing the process costs by the number of units produced.
12. Many businesses produce products with some unique features and some common
processes. These businesses use costing systems that have both job and process costing
features