Job and Process Costing Notes, Cost Accounting Notes B.Com 4th Sem CBCS Pattern

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Job Costing and Process Costing Notes

Cost Accounting Notes for B.Com 4th​​ Sem CBCS Pattern

Q. What is Job costing (2018) and Process costing? Distinguish between job costing and process costing. 2016SN, 2017

Q. Explain the features, advantages and disadvantages of job costing.

Q. What is process costing?​​ What are the fundamental principles of Process Costing? Point out the advantages and limitations of Process costing. 2019

Q. Explain the meaning and treatment of Normal, Abnormal loss and abnormal gain in Process Accounts. Distinguish between normal and abnormal process loss. 2017, 2019, 2019SN

Q. Practical Problems: Preparation of process accounts together with normal, abnormal loss and abnormal gain account, preparation of profit and loss account and costing profit and loss account, treatment of process finished stock and stock of raw material in process accounts. Follow examples of BASU AND DAS COST ACCOUNTING BOOK. 2013, 2016, 2018


Job Costing​​ Meaning

Job costing​​ is designed to accumulate cost data for a manufacturing firm which produces goods to specific order. It is also known as specific orders costing or production order costing.​​ Under this method of costing, each job, batch or contract is treated as a cost unit and costs are collected and built up accordingly.

According to “ICMA”, London, it is that category of basic costing method which is applicable where the work consists of separate contract job or batches each of which is authorized by specific order or contract. It is followed by manufacturing and non-manufacturing concerns.​​ 

It is employed in industries in which:

a) A production is done on the basis of customer’s own specifications.​​ 

b) Products are manufactured in distinguishable lots.​​ 

c) Products are not uniform.​​ 

d) It is practical to maintain a separate record of each lot from the time production is begun until it is completed.​​ 

Following is the list of concerns which generally employ job costing method.​​ 

a) Printing Work. b) Design Engineering Concerns. c) Repair Works. d) Construction companies. e) Furniture makers. f) Hardware industry. g) Automobile garages. h) Interior decoration etc.

Salient Features of Job Costing

The salient features of job costing can be mentioned as below:​​ 

a)​​ Work is carried out against customers’ orders and not for maintaining stock for sale.​​ 

b)​​ Work has to be carried out according to the specification of the customers.​​ 

c)​​ Each job can be clearly identified from the other, or at least physical identification is pre-supposed.​​ 

d)​​ Each job requires particular attention and skill depending upon the specification.​​ 

e)​​ Every job does not pass through all the departments. Nature of the job decides through which departments it will pass.​​ 

f)​​ There is no standardization of jobs. Each job is a separate non-standard work.​​ 

g)​​ Each job is to be charged with its own costs.​​ 

h)​​ Work-in-progress at any time depends upon the number of jobs in hand at that time. A separate work-in-progress record is maintained for each job.​​ 

Advantages of Job Costing

The following advantages are claimed of job costing:​​ 

a)​​ Profitability of each job can be known separately.​​ 

b)​​ Management, on the basis of past job cost records, can make dependable estimates for similar future jobs.​​ 

c)​​ Job costing shows the material cost, labour cost, factory overheads, administration overheads, selling and distribution overheads for each job in detail and hence, it facilitates the control of the costs of similar future jobs.​​ 

d)​​ On the basis of budgets, the overhead recovery rates may be pre-determined. This makes working out of the incidence of overheads for each job easy, but budgetary control becomes necessary so as to see that there is no gross over-or under-recovery of overheads.​​ 

e)​​ Under job costing, since each job is clearly distinguished from the other, the spoilage and defectives from each job can be separately known and hence, they can be controlled.​​ 

f)​​ Job costing facilitates pricing of each job. Rates or profits, according to different types of jobs, are mentioned in the management policy. The applicable rate is applied on the estimated cost, to ascertain the price.​​ 

g)​​ In case of Government contracts of new nature, often the contract price is agreed at certain per cent added to cost (i.e., cost plus contracts). Job costing gives much advantage in this case.​​ 

h)​​ Detailed job cost records of the past periods can be preserved and studies to understand the trends of costs of different elements.​​ 

Disadvantages of Job Costing

The following are the principal disadvantages of job costing:​​ 

a)​​ The method is costly and laborious owing to much clerical work required to maintain detailed information.​​ 

b)​​ Cost records are made after the costs are incurred. So, control becomes impossible, unless proper estimates or standards are set and control is exercised on the actual expenditure with reference to corresponding estimate or standard.​​ 

c)​​ Previous job cost records may fail to guide the future cost, if there is fundamental change in the market conditions.​​ 

d)​​ Errors in estimation or in cost records may bring about sad results.​​ 

Process Costing

Process costing is a method of operation costing which is used to ascertain the cost of production at each process, operation or stage of manufacture, where processes are carried in having one or more of the following features:

Where the product of one process becomes the material of another process or operation

Where there is simultaneous production at one or more process of different products, with or without by product,

Where, during one or more processes or operations of a series, the products or materials are not distinguishable from one another, as for instance when finished products differ finally only in shape or form’.

Process costing is defined by Kohler as:​​ “A method of accounting whereby costs are charged to processes or operations and averaged over units produced; it is employed principally where a finished product is the result of a more or less continuous operation, as in paper mills, refineries, canneries and chemical plants; distinguished from job costing, where costs are assigned to specific orders, lots or units.

Features/Characteristics of Process Costing:​​ 

a)​​ Process Costing Method is applicable where the output results from a continuous or repetitive operations or processes.

b)​​ Products are identical and cannot be segregated.​​ 

c)​​ It enables the ascertainment of cost of the product at each process or stage of manufacture.

d)​​ The output consists of products, which are homogenous.​​ 

e)​​ Production is carried on in different stages (each of which is called a process) having a continuous flow.​​ 

f)​​ The input will pass through two or more processes before it takes the shape of the output. The output of each process becomes the input for the next process until the final product is obtained, with the last process giving the final product.​​ 

g)​​ The output of a process except the last may also be saleable in which case the process may generate some profit.​​ 

h)​​ The input of a process except the first may be capable of being acquired from the outside sources.​​ 

i)​​ The output of a process is transferred to the next process generally at cost to the process. It may also be transferred at market price to enable​​ checking​​ efficiency of operations in comparison to the market conditions.​​ 

j)​​ Normal and abnormal losses may arise in the processes.

Application of Process Costing

There are number of industries where Process costing system can be used except where job, Batch or Unit Operation Costing is necessary. The following are examples of industries where process costing is applied:

a)​​ Where the final product merges only after two or more process such as paper-the raw material, bamboo is made into pulp; pulp is a made into paper and then it is finished, glazed etc. for sale;

b)​​ The product of one process becomes the raw material of another process or operation e.g. refined groundnut oil is the material for making vegetable ghee and

c)​​ Different products may have a common prior process e.g. brass goods will require melting of brass commonly for all goods. Another example is petroleum products by the same refinery.

Some other industries where Process Costing is applied are:

Chemical works, Textiles, weaving, spinning , Soap making, Food product, Box making, Canning factory, Coke works, Paint, ink and varnishing etc.

Difference between Job costing and Process Costing

Basis of distinction

Job Costing

Process Costing


Job costing is used when the cost object is an individual (or a lot/batch) unit or a distinct product or service.

Process Costing is generally used for a mass of identical product or service.

Accumulation of Cost

Costs can be accumulated by each individual product or service.

The Costs are accumulated in a period. The total costs in a period are divided over the number of units to get an average unit cost.

Cost Determination

Job costing is done against a specific order being produced.

Costs are compiled for each process over a period of time.

Cost Calculation

Costs are calculated when a job is over.

Costs are calculated at the end of a cost period like an accounting year.


There are usually no transfers of costs from one job to another.

Transfer of costs from one process to another is made as the product moves from one process to the other.

Forms and Details

There is more paper work.

It has lesser paper work.


There is little or no inventory.

There is regular and significant inventory.


It is less amenable to mechanization & automation.

It is more amenable to mechanization & automation.

Advantages of Process Costing:​​ 

The following are the main advantages of Process Costing:

a)​​ It is possible to determine process costs periodically at short intervals. Average unit cost can be computed weekly or even daily.

b)​​ It is simple and less expensive to find out the process costs.

c)​​ It is possible to have managerial control by evaluating the performance of each process.

d)​​ It is easy to allocate the expenses to processes in order to have accurate costs.

e)​​ It is easy to quote the prices with standardization of process. Standard costing can be established easily in process type of manufacture.

Disadvantages of Process Costing:​​ 

The following are the main disadvantages of Process Costing:

a)​​ Cost obtained at the end of the accounting period are only of historical value and are not very useful for effective control.

b)​​ Valuation of work-in-progress is generally done of estimated basis which introduces further inaccuracies in total cost.

c)​​ Where different products arise in the same process, it is not possible to exactly ascertain the total cost of the products.

d)​​ If any error occurs while calculating average costs, it will be carried through all the processes to the valuation of work in process and finished goods.

e)​​ The computation of average cost is more difficult in those cases where more than one type of product is manufactured and a division of the cost element is necessary.

Fundamental Principles of Process Costing:​​ 

The following are the fundamental principles of process costing:

a)​​ Cost of material, wages and overheads expenses are collected for each process or operation in a period.

b)​​ Adequate records in respect of output and scrap of each processes or operation during the period are kept.

c)​​ The cost per unit of each process is obtained by dividing the total cost incurred during a period by the number of units produced during that period after taking into consideration the losses and amount realized from sale of scrap.

d)​​ The finished product of one process is transferred as a raw material to the next process.

Treatment of losses in process costing

It is rare that the output of a process is equal to its input. In most of the cases, the output of a process is less than the input. The difference between the input and output and output is called process loss. The process loss may be in the form of loss in weight, scrapes or wastes. These process losses may be classified into:

Normal Loss:​​ 

The fundamental principle of costing is that the good units should bear the amount of normal loss. Normal loss is anticipated and in a process it is inevitable. It is included in total cost of the product due to which cost per unit is increases. The cost of normal loss is therefore not worked out. The number of units of normal loss is credited to the Process Account and if they have some scrap value or realizable value the amount is also credited to the process account. If there is no scrap value or realizable value, only the units are credited to the process account.

Abnormal Loss:​​ 

If the units lost in the production process are more than the normal loss, the difference between the two is the abnormal loss. It is excluded from total cost due to which it does not affect the cost per unit of the product. The relevant process of account is credited and abnormal loss account is debited with the abnormal loss valued at full cost of finished output. The amount realized from sale of scrap of abnormal loss units is credited to the abnormal loss account and the balance in the abnormal loss account is transferred to the Costing Profit and Loss Account.

Abnormal Gain:​​ 

If the actual production units are more than the anticipated units after deducting the normal loss, the difference between the two is known as abnormal gain. It is excluded from total cost due to which it does not affect the cost per unit of the product. ​​ The valuation of abnormal gain is done in the same manner like that of the abnormal loss. The units and the amount is debited to the relevant Process Account and credited to the Abnormal Gain Account.

(Refer a practical question for example of treatment of losses in process costing – consult your teacher.

Difference between normal loss and abnormal loss:


Normal Loss

Abnormal Loss

1. Source

It arises due to internal factors.

It arises due to external factor.

2. Nature

It is recurring in nature.

It is accidental in nature.

3. Estimation

It can be estimated in advance from the past experience.

It cannot be estimated in advance.

4. Access to insurance

It is not insurable loss.

It is insurance loss.

5. Avoidance

It is unavoidable loss.

It is avoidable.


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