Difference Between Job Costing and Contract Costing

There are different kinds of businesses and hence, the costing method also differs. Two such costing methods are Job Costing and Contract Costing

Job Costing vs Contract Costing

The main difference between job costing and contract costing is that job costing is a method used for small-scale manufacturing jobs and for a very short time whereas contract costing is a method used for large-scale projects and an extended period.

Job Costing vs Contract Costing

This method is mostly used for small-scale jobs in manufacturing sectors such as printing press, garages, repair workshops, and foundry, etc. Job costing can be done in very little time.

This method is mostly used for large-scale projects in the construction sector such as dams, houses, buildings, etc. Contract costing is done in a planned manner and requires an extended period.

Comparison Table Between Job Costing and Contract Costing

Parameters of ComparisonJob CostingContract Costing
PurposeCosting system of specific customer orders.Costing system where a big project is undertaken.
Costing IndustryManufacturing of products.Construction works.
Work LocationCompany’s premises.Customer’s chosen work site.
The Scale of WorkInvolves only a small amount of work.Involves large-scale construction projects.
TimeWork can be completed in a short time.Work is completed in an extended period.

What is Job Costing?

Job costing is defined as the total cost of materials including all the resources, labor work, and overhead requirements for a small-scale project. It is also known as Job Order Costing.

This method is generally preferred by manufacturers, marketing agencies, advertising agencies, consulting firms, and health care organizations, etc.

The company’s expenditure of finances and resources for job costing is also less, making this costing method suitable for small organizations and product manufacturing companies.

What is Contract Costing?

Contract Costing is defined as a type of costing method which used in large-scale constructional activities such as projects including buildings, roads, bridges, etc. The person who takes the contract is called the Contractor and the person from whom the contract is taken is called the Contractee.

The agreement of the contract spans over a long time, usually more than a year. Contract costing involves accounting for many activities including project completion, production process, percentage margin, time, materials, and profit margin.

There are namely five features of contract costing including materials, wages, direct charges, bill of sub-contractors, and certificate of completion. The work experience gained by an individual in contract costing is considered extremely valuable in this field.

Main Differences Between Job Costing and Contract Costing

  1. The work cannot be divided into different parties in job costing while in contract costing, work can be split into other sub-contractors.
  2. Less expenditure is required in job costing whereas, a large amount of investment is needed in contract costing.

Conclusion

Costing is a necessary tool when it comes to businesses. However, the costing methods differ for each business.

Job costing and contract costing also serve the same purpose in the end. However, each of them is meant to be used by different organizations. When it comes to temporary use for a small-scale job, job costing is the method we use.

With the technology at its all-time-best, accounting software is used by various organizations as it is convenient and accurate since there are no risks of incorrect calculations.

References

  1. https://books.google.com/books?hl=en&lr=&id=t1Ll2-tG-L4C&oi=fnd&pg=PA17&dq=job+costing&ots=rrzAeSuGs5&sig=eXnWWHBThOROG_amPxyF9c8Tm3s
  2. https://link.springer.com/chapter/10.1007/978-1-349-90655-0_9
Search for "Ask Any Difference" on Google. Rate this post!
[Total: 0]
One request?

I’ve put so much effort writing this blog post to provide value to you. It’ll be very helpful for me, if you consider sharing it on social media or with your friends/family. SHARING IS ♥️