This lesson examines how costs are tracked and assigned in different production environments. Job costing is used for unique products or batches, while process costing is used for mass-produced, homogeneous goods.

• Job Costing: Job costing is used when a product or service is produced as a distinct, identifiable unit or batch (a ‘job’) . It is ideal for industries like construction, specialist manufacturing, and custom services. In a job costing system, costs for materials, labour, and overhead are tracked and assigned to a specific job. A job cost sheet accumulates these costs to determine the total and unit cost for that specific job .

• Process Costing: Process costing is used in industries that produce large volumes of homogeneous products through a continuous process (e.g., chemicals, food processing, oil refining) . Costs are accumulated by department or process for a specific period. The total cost of the process is then divided by the number of units produced during that period to determine an average cost per unit. This method is simpler than job costing when products are indistinguishable.

• Equivalent Units: In process costing, when some units are not fully complete at the end of a period, the concept of ‘equivalent units’ is used. Equivalent units represent the number of fully completed units that could have been produced from the work done during the period on both completed and partially completed units.