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Construction accounting

Job costing vs process costing

Job costing traces direct materials, labor, and overhead to each individual job, so every project has its own cost record. Process costing accumulates costs by department or process and averages them across large runs of identical units. Construction uses job costing because every project is different.

Last updated · Aequo AP editorial team

Job costing vs process costing at a glance

The two systems track the same three cost types — direct materials, direct labor, and overhead — but differ in where costs are collected and how unit cost is calculated.

Job costing (job order costing)Process costing
Best forCustom, distinct jobs: a building, a remodel, an auditContinuous production of identical units: paint, cereal, cement
Costs collected byJob (and in construction, phase and cost code)Department or process
Core recordJob cost sheet / job-cost ledger per jobDepartmental cost records and equivalent units
Unit costTotal cost of the job (or job ÷ units in the job)Department costs ÷ equivalent units produced
VolumeLow volume, each job uniqueHigh volume, units interchangeable
Key question answeredDid this job make money against its estimate?What does one unit cost to produce this period?
Typical usersContractors, engineering firms, agencies, repair shopsRefiners, food processors, chemical and bottling plants

What is job costing?

Job costing is a costing system that traces individual costs directly to the specific job or service that caused them. It suits work that is custom-made or where costs are easy to trace to one job.

OpenStax’s managerial accounting text names building contractors as a classic job-costing business: each project consumes its own materials, crew hours, and subcontract costs, and the contractor needs to know whether that project earned its margin. In construction the job is usually broken down further by phase, cost code, and cost type (labor, material, subcontract, equipment, other).

For the construction-specific version — cost codes, committed cost, and how AP bills feed the job-cost ledger — read what job costing is in construction.

What is process costing?

Process costing collects costs by department or production process for a period, then spreads them over the units produced using equivalent units for partly finished work.

Because every unit is the same, nobody needs the cost of “unit 4,812”. The question is the average cost per unit through each department. Equivalent units convert partly completed work into whole-unit equivalents, calculated separately for materials and conversion costs.

Examples of each

If a customer can point at “their” job, it is job costing. If the output is poured, bottled, or bagged by the thousand, it is process costing.

ScenarioMethodWhy
General contractor building a medical officeJob costingOne contract, one budget, costs coded to that job
Electrical subcontractor with 20 open jobsJob costingLabor and material must be tracked per job to bill and measure margin
Ready-mix concrete plantProcess costingIdentical cubic yards produced continuously
Precast plant making custom panels for one projectJob costing (or hybrid)Custom run tied to a single customer order
Asphalt plant that also pavesBothProcess costing for plant output, job costing for paving contracts

Why construction uses job costing

Contractors are paid per contract, bid per project, and judged per project margin, so costs have to be recorded per job. Process averages would hide which jobs lost money.

  • Bids and estimates are built per job, and job costing is how you compare the estimate to what actually happened.
  • Progress billing, retainage, and change orders are all contract-specific.
  • WIP schedules and percentage-of-completion revenue rely on cost-to-date per job.
  • Certified payroll, lien waivers, and owner reporting are all organized by project.

Can a business use both?

Yes. Many manufacturers and some contractors run a hybrid: process costing for standardized production and job costing for custom orders or installation work.

Frequently asked questions

What is the main difference between job costing and process costing?

Job costing collects costs by individual job and calculates the cost of each job. Process costing collects costs by department or process and averages them across identical units using equivalent units.

Is job order costing the same as job costing?

Yes. Job order costing is the textbook name; contractors usually just say job costing.

Which costing method does construction use?

Construction uses job costing, usually with extra dimensions — phase, cost code, and cost type — so each project’s budget, committed cost, and actual cost can be compared.

What do job costing and process costing have in common?

Both track direct materials, direct labor, and overhead, and both use those costs to value inventory or work in progress and to work out unit cost.

Related guides and tools

What is job costing in constructionCost codes, committed cost, and the AP bill as a job-cost entry.Job costing in QuickBooks OnlineProjects, classes, and items for construction bills.Job-cost error impact calculatorWhat miscoded invoices do to project margins.WIP reports in constructionOver/under billing from job-cost data.

Sources

  1. OpenStax, Principles of Accounting Vol. 2 — 4.1 Distinguish between Job Order Costing and Process Costing
  2. OpenStax, Principles of Accounting Vol. 2 — 5.1 Compare and Contrast Job Order Costing and Process Costing

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