Definition

Job costing system is based on the concept that each product is unique, or they are custom-made for each client. One product is different from the other in terms of labor and material requirements. Process costing is based on the consistent process of manufacturing the product or by the simultaneous processes by different departments to make one product. It is used for those companies that produce similar units or identical products. Activity-based costing includes allocating overhead costs and is based on the concept that the price of products does not only include materials and labor, but also several different activities such as machinery maintenance, machinery production, quality assurance and quality control of products, and even repair.

Compare and Contrast

Job costing is used by companies that manufacture unique products, like custom-made furniture, cars, and houses. While process costing is used by companies that have a similar or identical product, like soft drinks, spices, car tires, and toilet rolls, etc. Although, job-costing takes time and work because each unique product should be calculated for, it is worth the effort because each product requires different time, effort, and materials to be manufactured, therefore so does the cost of each product. Process-costing reduces the time and effort to calculate each product, because they are identical. Activity-based costing is for companies that does not rely only on costing their products in direct materials and direct labor but also on other consumables to be the basis of costing, unlike job costing and process costing.

Although, activity-based costing and job-based costing is similar on their approach of using labor, materials, and activities that consume resources to charge for their products. While activity-based costing and process-based costing is used if the manufacture is for similar or identical products.

Wetsuit World

Wetsuit World manufactures wet suits manufactured in six sizes (small, medium, large, extra-large, 2 extra-large, and 3 extra-large), with three selections of thickness (2 millimeter, 5 millimeters, and 7 millimeters), but made with same material and same color of black. The best suited costing system for Wetsuit World is the process-costing system because they produce similar products even though they have different sizes and thickness, these suits are not custom-made. In the same way, the manufacture is based on processes, where one department cuts the material, the next department sews the material, and then the packaging department. Each activity for these products is similar and therefore does not require activity-based costing.

References

Walther, L. & Skousen, C. (2009). Managerial and Cost Accounting Ventus Publishing ApS.

Heisinger, K. & Hoyle, B.J. (2012). Accounting for Managers Creative Commons. Retrieved from https://2012books.lardbucket.org/books/accounting-for-managers/index.html

Educba (n.d.), Job Costing vs Process Costing Educba. Retrieved from https://www.educba.com/job-costing-vs-process-costing/