Costing is a vital part of accounting and refers to calculating all expenses related to manufacturing products. When it comes to costing, you can choose between job costing software or process costing, with software available for each.
Which one you choose depends on your business needs.
Typically, job costing includes customer billing to outline the exact cost of each step in the process of a particular job or order. In process costing, costs accumulate by each process or processing department and may not focus on the exact cost of each item in the process.
What is job costing software?
It involves tracking all the costs for a specific job through customer billing and converting them into a database. This would include all the materials used, the time taken on the job, the number of workers and the overhead for manufacturing an item. Job costing tracks the exact cost of each step so that managers can assess the accuracy of the cost estimates and determine profitability.
What is process costing?
Rather than itemising the costs involved, process costing looks at the accumulation of costs over a lengthy production run. You’re considering the costs accumulated by process rather than each item. With process costing, the system records the costs of batches of identical units of one product.
What are the differences between job and process costing?
While both aim to get a final figure for the costs involved in production, there are some significant differences between the two costing processes. These include:
- Job costing is primarily used to cost products being manufactured that are of a specialised nature rather than mass-produced items, as would be the case with process costing.
- Because job costing is for specialised products, each job requires special treatment.
- Job costing requires no transfer of cost from one job to another; it’s all finalised. In process costing, the last process is transferred to the next one for costing.
- Job costing calculates the cost for each individual job, whereas process costing – as the name suggests – calculates the cost of each process divided across the number of units produced.
- Job costing determines the cost once the job is complete. Process costing determines the cost of each job ahead of time.
What are the benefits of job costing?
1. Increased profitability
Because the system allows for individual item costs, you’re able to more accurately calculate your profit (or loss) and decide which items are more profitable going forward. You can quickly identify products that are not bringing in sufficient cash to warrant their manufacture.
2. Better budgeting
With job costing, you can deduce exactly how much is spent on individual elements, from labour and time to materials. This helps you better budget for the job now and in the future, ensuring you don’t lose out.
3. Advanced analysis
Determine the costs of each item in advance rather than waiting to calculate the costs after the fact. This is very helpful for business decision-making.
4. Employee performance
Through job costing, you can more accurately assess the performance of individual employees rather than looking at the staff as a whole. Where process costing gives you insight into the performance of a department, job costing provides individual data for performance assessment. This empowers you with the information needed for improved efficiency and cost control.
When you’re working with a job costing system, you can calculate both direct and indirect costs and use these calculations to adapt costs as you go along. This could be everything from utilities to salaries so that you’re making a profit at the end.
6. Scalability for business
No matter if you’re a start-up business or an established organisation, the costing system you choose can be scaled up and down. It’s able to match a variety of different processes, from simple tasks to complex manufacturing operations.
7. Excellent oversight
With job costing, you have visibility across the manufacturing process, providing you with sufficient insight to identify potential issues and make corrections in real-time to avoid disasters. Some of the real risks you can avoid with this is ensuring you’re not going over budget.
Finally, this is a brilliantly accurate system for analysing manufacturing costs. This is great for your business and for your clients and stakeholders, as they can see exactly where the money is being spent.
Who does job costing software work for?
This particular system is obviously tailored to the manufacturing or construction industry but is particularly beneficial for your business if you fit any of the following categories:
- You are detail-oriented: You require a comprehensive overview of all the business costs and significant documentation to ensure stakeholders and accountants are kept satisfied.
- You produce a specialised product: If you make one or a few unique items rather than a company that mass produces goods, then this is an ideal choice.
- You invoice customers directly: If you deal directly with customers and invoice them as such, then job costing is a great option.
- Your job is limited in size: If you work on smaller jobs or one individual job for a longer period of time, then job costing is for you.
If you’re still unsure whether job costing or process costing is for you, then Omni Accounts can assist with both.
The Omni Job Costing module can handle costing for individual items, with the process costing option to determine the cost of batches of the same items manufactured at the same time. This can be used for several industries, including manufacturing, trade jobs, workshops, repairs and maintenance, installations and project costing. You can also upgrade to more features as your business expands or decrease the number of features where necessary.
To find out more, get in touch with Omni Accounts today!