What kinds of companies would use job costing? The chart below shows how various companies choose different accounting systems, depending on their products. First, companies producing individual, unique products known as jobs use job costing (also called job order costing). Companies such as construction companies and consulting firms, produce jobs and use job costing.

Second, some companies, like furniture manufacturers, produce batches of products. They produce all of the components of a single product (e.g. coffee tables) in one batch. They would then produce the components of another product (e.g. dining room sets) in a new batch. (Some university food service companies prepare meals this way.) Companies such as these use job costing methods to accumulate the cost of each batch.

The last two types of production in use process costing methods described in another chapter, so we give just a brief overview here. Repetitive manufacturing lends itself to the use of automated equipment that minimizes the amount of manual material handling. Automobile assembly plants, bicycle assembly plants, and computer assembly plants use repetitive manufacturing.

Continuous flow processing is the opposite of job shops. Companies using this process continuously mass-produce a single, homogeneous product. Companies might use process cost systems in manufacturing paint, grinding flour, and refining oil.

Here are a few more examples to illustrate the different types of costing systems:

Job costing and process costing have important similarities:

• Both job and process cost systems have the same goal: to determine the cost of products.
• Both job and process cost systems have the same cost flows. Accountants record production in separate accounts for materials inventory, labor, and overhead. Then, they transfer the costs to a Work in Process Inventory account.
• Both job and process cost systems use predetermined overhead rates to apply overhead.

Job costing and process costing systems also have their significant differences:

• Types of products produced. Companies that use job costing work on many different jobs with different production requirements during each period. Companies that use process costing produce a single product, either on a continuous basis or for long periods. All the products that the company produces under process costing are the same.
• Cost accumulation procedures. Job costing accumulates costs by individual jobs. Process costing accumulates costs by process or department.
• Work in Process Inventory accounts. Job cost systems have one Work in Process Inventory account for each job. Process cost systems have a Work in Process Inventory account for each department or process.

Here is a short video describing the differences between job costing (sometimes called job order costing) and process costing:

You can view the transcript for “Job Order Costing vs Process Costing” here (opens in new window).

Now check your understanding of a job order costing system with this interactive.

We’ll use a service business next to illustrate the basic idea of job costing, but first, check your understanding of the differences between job costing and process costing.