Job Order Costing vs Process Costing

Description
Welcome back. In this presentation I wanted to go over the differences between job order costing and process costing. So, in managerial accounting we’re looking at a lot of manufacturing firms and the most common costs associated with manufacturing are product costs. So, just to remind you, product costs are your direct materials, your direct labour, your manufacturing overhead. All of these costs are going to be accumulated and assigned either using job order costing or process costing.

The difference between job order costing and process costing is that job order is normally used for highly custom products. So, think about a furniture, manufacturer or let’s say, for example, Boeing – the aircraft manufacturer in the States. Whenever they’re putting together an aircraft they’re going to have to accumulate all these costs – materials, labour and overhead – and they’re going to have to assign them to a job, and each of these jobs are going to be a different aircraft. So you might have a jumbo jet for number 1, you might have a smaller commercial airplane for job number 2, and so on. So, the way in which we assign these costs is going to be using a material requisition form, when we’re assigning labour we’ll use time tickets (which give us an idea of how many hours go into a certain job) and so forth.