---
title: "Short note: job and process costing"
subject: "Engineering Economics"
chapter: 1
key: "semester_6/engineering_economics:short-note-job-process-costing"
source: https://www.bctengineer.com/q/semester_6/engineering_economics/short-note-job-process-costing
site: BCT Engineering
---

# Short note: job and process costing

Engineering Economics · Chapter 1: Introduction

- Asked in: 2068 Jestha, 4 marks; 2066 Magh, 4 marks; 2065 Chaitra, 4 marks (asked 3 times)
- Video: [Process Costing vs. Job Costing](https://www.youtube.com/watch?v=R4LZ55RSBaU) — Ambition, Aligned with Devon Coombs
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_6/engineering_economics/short-note-job-process-costing
- Whole chapter: https://www.bctengineer.com/md/semester_6/engineering_economics/chapter-1

## Question

Write a short note on job and process costing.

## Short answer

Job costing tracks costs per custom order (e.g., construction) using job cost sheets, giving exact per-job profit but requiring heavy clerical work. Process costing averages costs over a period for continuous mass production (e.g., cement), offering simpler records but only average unit cost.

## Answer

Costing methods collect the cost of producing goods or services and assign it to units. The method depends on the nature of production.

#### Job costing
- Used when work is done in separate jobs or orders, each different and to customer specification (building construction, repair workshop, printing, machinery fabrication).
- A **job cost sheet** is opened for each job. Direct material, direct labour and a share of overhead are charged to it.
- The cost of a job is known only when the job is complete. Profit is found job by job.
- Overhead is applied with a predetermined rate (e.g. per labour hour).
- Advantages: gives exact cost and profit of each job; helps in quotations and control.
- Limitations: clerical work is heavy; costs are known late.

#### Process costing
- Used when production is continuous, standardised and mass-produced, passing through successive processes (cement, sugar, chemicals, textiles, oil refining).
- Costs are collected **process by process** for a period, not by order.
- Cost per unit of a process = (total cost of the process − value of scrap) / equivalent output units. The output of one process becomes the input of the next.
- Normal and abnormal losses, scrap, and work-in-progress (via equivalent units) must be accounted for.
- Advantages: simple, cheap records, suits large output.
- Limitations: gives only average cost; individual unit cost is not known.

| Basis | Job costing | Process costing |
|---|---|---|
| Production | Special orders | Continuous, uniform |
| Cost unit | Job | Process/period |
| Cost known | After job completion | At end of period |

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. Job costing suits:
   A. Separate orders made to customer specification, such as construction or printing
   B. Continuous mass production of uniform goods
   C. Only service firms with no materials
   D. Production with no overheads
   Answer: A. Each job is different, so cost is collected job by job. (Key point: When job costing is used)

2. In process costing, the cost per unit of a process is found by:
   A. Direct material only / units
   B. (Total process cost - scrap value) / equivalent output units
   C. Selling price - profit
   D. Total cost of the job / hours worked
   Answer: B. Costs are pooled per process and divided by equivalent output. (Key point: Process costing unit cost)

3. In job costing the cost of a job is known:
   A. Never exactly; only averages exist
   B. At the end of each month for all jobs
   C. Only after the job is complete
   D. Before work begins
   Answer: C. A job cost sheet accumulates charges until completion. (Key point: When cost is known)

4. A limitation of process costing is that:
   A. It needs a cost sheet for every unit
   B. It cannot handle scrap
   C. It is expensive clerical work
   D. It gives only average cost; individual unit cost is unknown
   Answer: D. Costs are pooled over many identical units. (Key point: Limitation)

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