Without proper finance management, a business will not run properly and will succumb to bankruptcy even before it can touch the surface of competition. As you go deeper into business finance, you will encounter two important terms: job costing and process costing. These costing phases have different functions, but their nature and importance to the business are just the same.
Job Costing
Job costing pertains to the accumulation of production costs regarding specific groups of units. Businesses that are manufacturing custom-based products will operate properly with the help of a job costing system. Here are some key points that will help you understand job costing:
- Uniqueness. Each product created in a business that operates in job costing system has different materials and cost. They are also tracked down separately. Also, specific client requests are prioritized in job costing since the products are custom-made.
- Varied production rate. Since job costing is limited to custom-made products and items under special requests, the estimated production rate in this system is varied. Most of the time, businesses under job costing have small production rates though. Small business accounting software can track job costing sheets easier and faster if the production volume is not too large.
- Managerial difficulty curve. The manpower and materials involved in businesses with job costing system require better managerial control compared to process costing system. Each material and job cost must be noted down carefully or it can result to logistical or accounting error. To manage this properly, job sheets must be held intact for accounting purposes.
- At rest during accounting period. Production usually stops during the accounting period of a business under the job costing system. While this is a common occurrence, some businesses still operate during accounting period, especially if certain situations do occur.
Process Costing
Process costing is meant for large businesses that are involved in lengthy production runs. Bottling companies are the best examples of businesses under the process costing system. The production is continuous and so is the accumulation of costs. The responsibility of process costing is even divided to different departments since overall labor is extensive. Here are the known business factors of a process costing system:
- Generic products. Before the final product reaches the market, it goes through a chain of processes within the organization. Products are delivered by bulk, according to consumer demands or the needs of another large-scale organization. Generic products fit well within a process costing system since there are no specific instructions from clients.
- Large production rate. The process costing system was created for businesses with large production rates. Production reports are usually required from each department to ensure that product costs are handled properly. Each department also keeps separate work-in-process (WIP) inventory.
- Easy management. The number of managers is parallel to the size and needs of an organization. The process costing system is easier to manage because the materials used in the production are the same. If changes occur, all processes in the respective departments will also change to make the logistics more organized. Automated online accounting programs can also help in speeding up logistics and management.
- Continuous work. Since consumer demands are always fluctuating, work will always become continuous in large organizations, even though the accounting process is taking place. An organized process costing system can make things run smoothly, without causing problems in financial management.
If you need an organized project costing system, you can rely on the software offered by Shoebooks. The company’s project costing software will take your business to a new level by providing forecasts regarding project expenditure, profits, and past invoices. Whether it is a process costing or job costing system, Shoebooks software for accounting can satisfy your business needs.
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