Process Costing | Comparison | Difference | Merits | Demerits | Difficulties

Comparison of Unit Costing with Process Costing

The following are the differences between the Unit Costing and Process Costing.

Process Costing - Comparison, differences, advantages, disadvantages, difficulties

Process Costing – Comparison, differences, advantages, disadvantages, difficulties

Unit Costing Process Costing
1. Single product alone is produced. Single product or limited range of products are produced.
2. Normal process costing principles are applied but less in detail. 2. There is no application of unit costing principles.
3. Material used is shown as a separate item in the cost statement. 3. Raw material is transferred from one process to another at an increasin cost.

Differences between job costing and process costing

The main points of difference between Job Costing and Process Costing are presented below.

Job Costing Process Costing
1. Production is carried on according to specific orders. Products being homogeneous; the production goes on continuously.
2. Costs are determined for each job separately. Costs for each process are determined or computed for a specific period.
3. Each job is separate. There is no relationship between two jobs. Products have no individual identity since they are produced continuously.
4. The unit cost of a job is computed with the help of total cost of a job divided by the number of units produced in the job. The average cost per unit of a process is calculated with the help of total cost of the concerned process divided by the number of units produced in the concerned process for a specific period.
5. The cost is calculated only after the completion of job. Costs are calculated at the end of a specified period.
6. There is no transfer of materials from one job to another unless there is any surplus. There is a transfer of materials as work in progress or incomplete materials from one process to another process.
7. The costs of one job cannot be transferred to another job. The costs of one process is transferred to another process.
8. The finished product of one job may or may not be raw materials to another job. The finished product of one process is a raw material to next process.
9. There may or may not be work in progress at the beginning or end of the accounting period. There is always some work in process at the beginning as well as at the end of the accounting period.
10. Production control technique cannot be exercised under job costing system. Production control technique can be exercised under process costing system.
11. There is no continuous production. There is a continuous production.
12. It requires more forms and details regarding the utilization of material and labour It required few forms and fewer details with regard to utilization of material and labour
13. Product was handed over to the customer soon after the completion of job. Products are handover to the stores department and kept as stock.
14. Only one work-in-progress account is maintained. Work-in-progress account is maintained separately for each process.
15. Manufacturing costs are accumulated for particular job. Manufacturing costs are accumulated for entire process and there is no possibility of determination of manufacturing cost to each unit separately in a process.
16. Job order is characterized as labour intensive. Process costing is considered a capital intensive.

Advantages of Process Costing

The following are the advantages of process costing.

1. The calculation of average cost is very easy since the homogeneous products are produced.

2. The cost is calculated periodically.

3. Less clerical efforts and costs are enough to calculate cost.

4. Effective control can be exercised on production very easily.

Disadvantages of Process Costing

The main disadvantages of process costing are briefly explained below.

1. The process costing system does not disclose the weaknesses and inefficiencies of any process. Hence, the accurate cost per unit cannot be calculated.

2. The emergence of joint products may present the problem of apportionment of joint costs.

3. The calculated cost per unit may be a misleading if the apportionment of joint costs is not properly done.

4. Process costing has all the weaknesses of historical costing since it is based on historical costs.

5. The degree of completion of work in progress is taken into account for the calculation of cost per unit. But, there is no standard scale or measurement to access the degree of completion of work in progress. Hence, mere guess work is followed which may lead to inaccurate calculation of cost per unit.

6. The process costing system does not consider the efforts of individual workers or supervisors.

7. The use of excessive materials and labour are not disclosed until the end of the period.

8. In the case of joint product, the calculation of cost per unit is very difficult.

9. There is lack of a precise and commonly accepted criterion for the allocation of joint costs among different types of products.

Difficulties in Process Costing System

The Cost Accountant faces the following difficulties while maintaining the records under process costing system.

1. The correct treatment of waste and scrap.

2. Accounting for normal loss, abnormal losses and/or abnormal gains in each process separately.

3. Computing the correct value of incomplete units i.e. work in progress at the end of the accounting period.

4. Accounting for joint products and by-products, which may emerge from each process.

5. Accounting for inter process profits.