Costing Process V Job Costing

Costing

Process v Job Costing

Process costing is typically employed when the products or services provided are incredibly uniform if not exactly the same, meaning that the cost of supply the goods or services does not change (or change much) from production cycle to production cycle. Production is also often a constant or ongoing process for companies that utilize process costing methods; a manufacturing concern that churns out the same model of car all year or car detailing services that perform the exact same functions on every vehicle that rolls through are likely to use process costing methods. Job costing, on the other hand, is employed when there are significant changes in the goods or services provided at any given point, and/or when products or services are created/delivered in discrete batches rather than in a continuum of units. A cabinet maker that specializes in high-end custom-made cabinetry is likely to use a job costing method, for example, as the costs (in materials and in time and energy) will vary significantly from job to job; "making custom cabinets" is not a process that can be easily quantified in the way that "making the same model cars" can be due to the level of variation involved.

Different examples of costing needs and practices abound within the community. One study examined a medical institution that actually employed both types of costing, shifting from a job-centered costing method to a process-centered costing method (Chan 1993). Though per-patient costs varied greatly, it was actually found to be beneficial to the institution to shift to process-based costing, as the individual processes performed were largely the same, though their combinations differed for each patient (Chan 1993). Auto mechanics actually work in much the same way; per-vehicle costs vary hugely depending on what's wrong with the car, but the processes themselves generally have set prices. Fast food restaurants like McDonald's, on the other hand, are more likely to operate purely based on process costs with very little job variation (though of course different customers order different things); because each time McDonald's makes a product it strives to have that product be identical to those that were made before, the processes are set and can be easily quantified. Another example of pure job costing is web development, where the processes themselves vary hugely from project to project, meaning the cost and time involved also varies.

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