Distinguish between Job Costing and Contract Costing

Distinguish between Job Costing and Contract Costing

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 we are explaining in four points.

Job costing is one of the methods of costing. In this system, work is undertaken to customer’s specific requirements on the basis of orders. Contract costing is a way of providing a quotation for especially large and long term projects that will usually be performed over a number of accounting periods.

Following are four points which show as the basis of a difference between job costing and contract costing:-

1st Point: Area of Work

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

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

2nd Point: Period

In job costing, we take that job which can finish the 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 the contract to account for every contract. In this account, we show all expenses relating to contract and it also shows work in progress in the form of work certified and works uncertified. A difference of credit-and debit side of this account will show notional profit or loss.

4th Point: Transfer of Profit

If a specific job is done and finished goods of this job are sold to customers, it’s 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.

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