Question

Distinguish between ‘job costing’ and ‘contract costing’?

Answer 1

Job costing and contract costing both are the methods of costing and used when we receive specific order for performing any work. But after this, there are many differences between job costing and contract costing which can explain in four points.


1st Point : Area of Work

→ Job costing is used for calculating cost in very small work like making of specific type of product. For instance, if you receive the order of making 10 chairs, you will used job cost in this specific work instead of using contract costing system.


→ Contract costing is used for calculating the cost in very big work like making of 10 floors building or making of bridge.

2nd Point : Period 
→ In job costing, we take that job which can finish within short period.

→ In contract costing, we include that contracts which can finish within one year or more than one year. 

3rd Point : 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. 

4th Point : Transfer of Profit
→ If specific job is done and finished goods of this job are sold to customers, its all profit will transfer to profit and loss account.

→ In contract costing, we check, how much work is done and on the basis of work certified, we calculate the proportion of notional profit which is transferred to profit and loss account.

Answer 2

Difference between job costing and contract costing is given below.

Job costing differs from contract costing in size of the work it is undergoing.

Job costing:

• In job costing, the cost of the work is calculated based on the work done there.
• It is a small scale one.
•  For example, Making 10 chairs.

Contract costing:

•  In contract costing, the costing is done in a large scale for large contract works.
• For example, building 10 floors, so calculating the whole cost on a single time.