Running Head: JOB CASTING
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Job Costing vs. Process Costing
Southern New Hampshire University
May 14,2022
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• Job costing refers to the accounting method that is designed to keep track of the cost of
individual jobs and projects. It takes into account direct as well as indirect costs, and it can be
categorized into three distinctive categories, namely materials, labor, and overheads. The
fundamental goals of job costing include understanding the profit and loss relating to a job,
comparing estimates, and uncovering inefficiencies as well as excessive cost areas. The job
costing method is typically used in projects that involve a diverse range of workstreams with
varying outputs and stakeholders. This method impacts the gross profit margin of a business
(Walther & Skousen, 2010).
• Process Costing can be defined as the accounting method that involves the tracking,
tracing, and accumulation of direct costs and assigning indirect costs to manufacturing processes.
This method is adopted in projects that deliver a large number of units of similar or the same
outputs. This method is mainly applicable in project settings where there is an opportunity for
ongoing streamlining of activities. This method helps in breaking down costs over a specific
timeframe. It is particularly useful when the cos relating to jobs or outputs cannot be
differentiated. This method helps in the ascertainment of the product cost (Dosch & Wilson,
2010).
Job Costing vs. Process Costing: Examples
• The Chevron Corporation company may apply the job costing approach when it intends to
keep a track of individual projects that it is working on. The job costing method is ideal when a
project involves varying workstreams along with diverse outputs, and the stakeholders involved
also vary considerably. This method can help a business entity to keep a tab on the costs relating
to its products, parts, and other dimensions relating to business, such as payroll activities. Job
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costing can help to assess costs typically for products or services that are developed based on the
requests of the customers (Dosch & Wilson, 2010).
• Chevron Corporation company may adopt the process costing methodology in case it is
working on manufacturing the same kinds of products in a large quantity, such as thousands of
units. Since the production cost would not vary between the individual commodities, there is an
option for the business entity to accumulate the overall manufacturing costs over a fixed period of
time and divide the total figure by the total number of units that have been produced by the
business for determining the costs. By adopting such a costing method, it will be possible for the
company to identify the costs that it has incurred while producing several units of the same output
(Chapter 4 how is process costing used to track production costs, 2021).
Service Industry Costing: Differences
• The costing methods that are used in the service industry are different from the ones that
are used in the manufacturing or merchandising industry because the ultimate outcome of both the
industries is entirely different. While the offerings of the manufacturing or merchandising
industry are tangible in nature, the offerings that are generated by the service industry are
typically intangible. Since they do not have a physical existence and the customers are not able to
see or touch them, the costing methods that are adopted by service providers are different than the
methods that are adopted by manufacturing businesses. When the same kinds of services are
delivered, service providers could use the process costing method. However, job costing is
another useful method that can be adopted in the specific context. Some of the steps that are
undertaken while determining the cost in the service industry include identifying the specific job,
identifying direct costs relating to the job, identification of the associated overheads, selecting the
cost allocation base, and identifying the rate per unit for the allocation of the costs.
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Service Industry Costing: Benefits
• A service industry company that uses costing is Hyatt Hotels Corporation. The application
of the costing method in the service industry setting is considered to be highly useful. Since the
level of competition in the service landscape is intense, it is a necessity for service providers
operating in the industry to keep a tab on the costs that they incur while progressing towards their
business goals and objectives. Some of the key benefits of costing for service companies include
it helps in the determination of the price of an offering, and it even helps to keep track of the
expenses that have been incurred by a business. The application of costing methods in the service
context can enable businesses to make strategic budgeting and forecasting activities. The insight
can be used by managers and leaders of an organization to make important decisions relating to
spending in the future and effective planning of available financial resources. Similarly, another
important advantage of costing in the service industry is the ability to identify areas of efficiencies
and inefficiencies. The insight can be used to improve the existing business processes.
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References
Chapter 4 how is process costing used to track production costs (2021). Retrieved May 10, 2022,
from https://saylordotorg.github.io/text_managerial-accounting/s08-how-is-process-
costing-used-
to.html#:~:text=Examples%20of%20companies%20that%20use,and%20Pittsburgh%20Pai
nts%20(paint).
Dosch, J., & Wilson, J. (2010). Process costing and management accounting in today's business
environment. Strategic finance, 92(2), 37-44.
Walther, L. M., & Skousen, C. J. (2010). Job Costing. Bookboon.
