Job costing method is mainly applied when the goods are produced, or services are rendered as per customer’s order. On the other hand, batch costing is a type of job costing, in which goods are produced in a lot of similar units, called as batches.
Whether we talk about business or industry, costing system is required everywhere to fix the price of products, to ascertain cost associated with the product and so on. However, a single costing system is not capable enough to fulfill requirements of various industries. Hence, different costing systems are designed, that businesses can use as per the nature of products, operations, and other parameters.
Basically, costing methods are classified into specific order costing and operation costing. Specific order costing is one where the production comprises of separate jobs, batches or contracts. So, it covers three costing methods, i.e. job costing, batch costing and contract costing. This article excerpt presents you all the important differences between job costing and batch costing, have a glance.
Content: Job Costing Vs Batch Costing
|Basis for Comparison||Job Costing||Batch Costing|
|Meaning||Job costing refers to a specific costing method, used when the production/work is carried out according to the requirements of customers.||Batch costing, is a form of job costing, that is applied when the articles are produced in batches, i.e. a group of like units are produced.|
|Production||As per customer specification||Mass production|
|Product||Product have an independent identity, as each job is distinct from other jobs.||Products do not lose their individual identity, as they are manufactured in continuum.|
|Cost unit||Executed Job||Batch|
|Cost ascertainment||On the completion of each job.||Ascertained for the whole batch and then per unit cost is determined.|
Definition of Job Costing
Job costing is described as a costing method, wherein customized production of goods or services are rendered. The method of costing is used when jobs are performed for different customers as per their orders. Under this system, each cost unit is treated as a separate entity, for costing purposes. Each job differs from another job in respect of:
- Material used
- Labors required
- Special customer needs
In this system, on the receipt of an inquiry from the client, the cost to be incurred is ascertained and based on the estimate, the price is quoted. The cost of material, labor and overhead incurred during the job is accumulated, and when the job is accomplished, these are compared with the quoted price, so as to determine the profit or loss of each job. It may extend to multiple accounting periods, and so they are not associated with particular periods.
Definition of Batch Costing
Batch Costing may be understood as a variant of job costing. In this system, a group of identical units, comprising of a batch is used as a cost unit, to estimate cost. To ascertain the cost per unit, the total cost of the batch is divided by the number of units produced in a batch, as represented below:
For each batch, a cost sheet is prepared and maintained, by allotting a batch number. There is batch wise preparation of material requisition note, engagement of labor and recovery of overheads.
This costing method is employed by firms to manufacture a large number of similar items or components, as they pass through the same process and so it is beneficial to ascertain their cost of production collectively.
Key Differences Between Job Costing and Batch Costing
The points given below are noteworthy so far as the difference between job costing and batch costing:
- A costing system applied when the production is made as per the customer’s needs and preferences are called as job costing. On the other hand, batch costing implies a costing method, generally adopted when the production is made in small lots of identical units.
- In job costing is undertaken for the product produced by separate orders. Conversely, batch costing is carried out when there is mass production, and the units are homogeneous.
- In job costing, each product has a unique identity, as each job is distinct from other jobs regarding material used, customer needs, hours of labor worked, etc. In batch costing, products usually lose their identity, as they are produced in the continuum.
- In job costing, the cost unit is the executed job, whereas, in the case of batch costing, the cost unit is a particular batch.
- In job costing, the cost is determined for each job after its completion. However, in batch costing cost is ascertained for the entire batch, after which cost per unit is computed by dividing the total cost by the number of units.
Job costing is employed in industries such as:
- Printing Press
- Interior Decoration
- Heavy machinery
Batch Costing is employed in industries such as:
- Pharmaceuticals industry
- Ready made garments
- Manufacturing of tube & tyre.
- Manufacturing of electronic parts
- Manufacturing of toys
Since batch costing is a type of job costing; the two closely resemble one another in the sense that each batch has a separate treatment like job and cost are ascertained for the whole batch. However, there are significant differences between these two costing methods. Moreover, job costing applies to both product and service industry, but batch costing is only applicable to product industry.