JOB COSTING VS CONTRACT COSTING
The difference between Job Costing VS Contract Costing is as follows:
|BASIS OF DIFFERENCE||JOB COSTING||CONTRACT COSTING|
|MEANING||Job costing is a system used for completion of specific customer orders where each unit produced is considered a job.||Contract costing is a costing system where work is undertaken according to special requirements of customers in a location specified by the customer.|
|AREA OF WORK||Job costing generally calculate the cost for a single or a few products.||Contract costing is used to calculate the cost for significant scale projects.|
|TIME PERIOD||A job usually spans over a small period of time, thus job costing can be completed within a short period of time.||The work of a contract progresses for a long period time, thus contract costing is conducted within an extended time period.|
|PLACE OF WORK||The product is completed within the premises of the company in a job.||Production or construction takes place in construction site selected by the customer.|
|TRANSFER OF PROFIT||When a job is done and finished goods are sold to the customer, the entire profit will be transferred to profit and loss account.||In contract costing, costs and revenues are recorded in proportion to the degree of completion and the resulting profit is transferred to profit and loss account.|
|SIZE OF JOB||Generally jobs are smaller in size.||Jobs are big and complex.|
|COST/ EXPENDITURE||Less expenditure required.||It requires huge expenditure.|
|PAYMENTS||Payments are made immediately after the completion of work.||Payments are made in installment.|
|TRANSFER OF JOB||Job cannot be transferred to other parties.||Some part of contract can be given to other parties or other sub-contractors.|
Job costing is suitable
for the manufacture of products under the customer’s specifications.||Contract costing is suitable for construction works.|
|VALUE OF WORK||The value of work is less.||The value of work is more.|
|ACCOUNT||In job costing, we make job account for every job. In this account, we show different expenses which are paid for completing that job.||In contract costing, we open contract account for every contract. In this account, we show all expenses relating to contract and it also show work in progress in the form of work certified and work uncertified. Difference of credit and debit side of this account will show notional profit or loss.|
Job costing or job order costing also called specific order costing is a method of costing which is used when work is undertaken as per the customer’s special requirement (tailor-made).
ACCORDING TO INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS, LONDON
“Job costing is that form of specific order costing which applies where work is undertaken to customer’s specific requirements and each order is of comparatively of short duration.”
Under this method of costing, each job is considered to be a distinct cost unit. As such, each job is separately identifiable. In the case of a job, work is usually carried out within the factory or workshop. Sometimes, a job is accomplished even in the customer’s premises.
Job costing is employed in the following cases:
- Where the production is against the order of the customer or jobs are executed for different customers according to their specifications.
- Where each job needs special treatment and no two orders are necessarily alike.
- Where there is no uniformity in the flow of production from one department to another.
- Where the work-in-progress differs from period to period on the basis of the number of jobs in hand.
Job costing is applicable to printing, furniture, hardware, ship-building, heavy machinery, foundry general engineering works, machine tools, interior decoration, repairs and other similar work.
Contract costing is also known as Terminal Costing. It is one form of application of the principles of job order costing. Contract Costing is a type of costing used in constructional activities such as construction of buildings, roads, bridges etc. The person who takes contract for a price is called the Contractor and the person from whom it is taken is called the Contractee.
ACCORDING TO CHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS, LONDON
“Contract costing is a form of specific order costing in which costs are attributed to individual contracts.”
In contract costing each contract is treated as a cost unit and costs are ascertained separately for each contract. Usually, there is a separate account for each contract.