1. When would job order costing be used instead of process costing?

Both job order costing and process costing are useful methods for manufacturers to understand, as they
can both help determine the cost of products. Your business can use job order costing and process costing to
track production costs and allocate expenses, such as time, materials and labor, to your products, and both
use about the same information to calculate unit cost. However, there are also a few key differences between
job order costing and process costing, including:

Product type:

Businesses use job order costing for small batches of customizable or unique products and individual job
orders, while businesses use process costing for mass-produced or standardized products. Typically, in process
costing, the products produced are the same or very similar.

Industry:

Often, different types of industries prefer either job order costing or process costing. Industries that
produce unique or custom orders for individual customers, including retail companies and hospitals, typically
use job order costing. Industries that produce large amounts of a single product or similar products, such as
manufacturers of a single product, typically use process costing.

Job size:

Job size is another difference between job order costing and process costing. Typically, smaller jobs or orders
warrant the use of job order costing, while larger production jobs typically warrant process costing. For
example, a business might use job order costing to price a customer's unique furniture order, which is a small
job. A business might use process costing to track the costs of mass-producing a large order of furniture.

Cost accumulation:

The method of cost accumulation is also different for job order costing and process costing. In job order costing,
costs accumulate by individual jobs. Typically, job costing includes customer billing to outline the exact cost of
each step in the process of a particular job or order. In process costing, costs accumulate by each process or
processing department and may not focus on the exact cost of each item in the process.

Cost reduction:

Another difference between the two types of costing is the opportunity for cost reduction, which refers to steps
that companies can take to reduce their cost of production and increase profits. Typically, job costing offers
fewer opportunities for cost reduction, while process costing offers companies various opportunities for cost
reduction.