There are different kinds of businesses; hence, the costing method also differs. Two such costing methods are Job Costing and Contract Costing.
Key Takeaways
- Job costing allocates costs to individual projects, while contract costing assigns costs to long-term contracts.
- Job costing focuses on smaller, distinct projects, whereas contract costing suits large-scale, complex projects.
- Job costing involves a quicker completion timeframe, while contract costing spans multiple accounting periods.
Job Costing vs Contract Costing
Job Costing is also known as Job Order Costing and is the total cost of materials involved in a small-scale project, which includes the resources, overhead requirements, and labor work. Contract Costing is the total cost of materials used in large-scale construction projects like buildings, bridges, and roads.
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
| Parameters of Comparison | Job Costing | Contract Costing |
|---|---|---|
| Purpose | Costing system of specific customer orders. | Costing system where a big project is undertaken. |
| Costing Industry | Manufacturing of products. | Construction works. |
| Work Location | Company’s premises. | Customer’s chosen work site. |
| The Scale of Work | Involves only a small amount of work. | Involves large-scale construction projects. |
| Time | Work 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.
Manufacturers, marketing agencies, advertising agencies, consulting firms, health care organizations, etc prefer this method.
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 contract spans over a long time, 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
- Work cannot be divided into different parties in job costing, while work can be split into other sub-contractors in contract costing.
- Less expenditure is required in job costing, whereas a large amount of investment is needed in contract costing.
- https://books.google.com/books?hl=en&lr=&id=t1Ll2-tG-L4C&oi=fnd&pg=PA17&dq=job+costing&ots=rrzAeSuGs5&sig=eXnWWHBThOROG_amPxyF9c8Tm3s
- https://link.springer.com/chapter/10.1007/978-1-349-90655-0_9
Last Updated : 13 July, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
The article is very well explained. It gives a good overview of job costing and contract costing.
Indeed. I couldn’t agree more.
This is such a handy post for starters in the field of business accounting.
I found the explanation to be informative.
I would love more references to further study the topic.
Good point. More references would be helpful.
Lovely post. I enjoyed reading it. I would like to delve more into the details of how both methods can be applied to the health care organization; I think it deserves a large portion of the focus as well.
I agree with you. It would be an interesting addition to the article.
That’s an interesting thought.
Very informative. It’s very easy to understand.
Indeed. Great explanation.
I agree. It’s very easy to comprehend.
I find the explanation provided to be simple and clear.
This article gives a great explanation of the differences between job costing and contract costing. It’s useful for those who are interested in business administration and accounting.