What is Job Order Costing? 

Job Costing, as the name implies, allows companies to track the revenues and costs of each job. Job costing systems record revenues and costs for unique units of product that can be easily distinguished from other units of the product. 

This allows managers to assess the accuracy of cost estimates (for pricing and budgeting purposes), determine profitability, and track costs throughout the project may identify unexpected changes early on. 

What is Process Costing?

Process costing allows companies to track the costs associated with a specific process or Activity. Process costing systems record revenues and costs for batches of identical units of product.

Comparison of Job Costing with Process Costing

A process costing system is used by companies that produce similar or identical units of product in batches employing a consistent process. 

A job costing system is used by companies that produce unique products or jobs. 

Process costing systems track costs by processing department, whereas job costing systems track costs by job.

A process costing system is used by companies that produce similar or identical units of product in batches employing a consistent process. 

A job costing system is used by companies that produce unique products or jobs. 

System Documentation

Accounts Used to Track Product Costing

The three inventory accounts that accountants use to track product cost information—raw materials inventory, work-in-process inventory, and finished goods inventory. 

These three inventory accounts are used to record product cost information for both process costing and job costing systems. 

However, several work-in-process inventory accounts are typically used in a process costing system to track the flow of product costs through each production department. Thus each department has its own work-in-process inventory account. 

(For the purposes of this material, assume each department represents a production process. This explains the term process costing because we are tracking costs by process.) 

The sum of all work-in-process inventory accounts represents total work in process for the company.

Recall the three components of product costs—direct materials, direct labor, and manufacturing overhead. 

Assigning these product costs to individual products remains an important goal for process costing, just as with job costing. However, instead of assigning product costs to individual jobs (shown on a job cost sheet), process costing assigns these costs to departments (shown on a departmental production cost report).

Related Topics

• Job Costing vs Process Costing
• Assign Direct Material and Direct Labor to Job
• Assign Manufacturing Overhead Costs to Job
• Assign Overhead Costs to Products
• Plantwide Cost Allocation
• Department Cost Allocation
• Activity-Based Costing
• Weighted-Average Cost of Products
• Production Cost Report
• Fixed, Variable, and Mixed Cost Estimations
• Contribution Margin Income Statement
• Cost-Volume-Profit Analysis
• Margin of Safety
• Contribution Margin per Unit of Constraint
• Absorption Costing vs Variable Costing
• Differential Analysis and Decisions
• Cost Decisions for Joint Products
• Capital Budgeting
• Life Cycle Costing
• The Master Budget
• Activity-Based Budgeting
• Standard Costs
• Imputed Value
• Variance Analysis for Product Costs
• Absorption Pricing
• Price Variance
• Absorption Variance 
• Responsibility Centers
• Comparing Segmented Income
• Using ROI to Evaluate Performance
• Using Residual Income to Evaluate Performance
• Use Economic Value Added to Evaluate Performance
• Transfer Pricing