{"id":94486,"date":"2021-03-12T22:56:34","date_gmt":"2021-03-12T15:56:34","guid":{"rendered":"https:\/\/bahtera.jp\/mto-mts\/"},"modified":"2026-09-03T19:22:19","modified_gmt":"2026-09-03T12:22:19","slug":"mto-mts","status":"publish","type":"post","link":"https:\/\/bahtera.jp\/en\/mto-mts\/","title":{"rendered":"Differences and Application Conditions of Job Order Costing and Process Costing"},"content":{"rendered":"<p>In job order costing, costs are aggregated per order, allowing for the calculation of manufacturing costs based on actual performance. However, it is challenging to adopt this method in mass production forecast factories. Therefore, IFRS (International Financial Reporting Standards) recognizes four inventory valuation standards: FIFO, moving average method, standard cost method, and total average method.<\/p>\n\t\t\t\t<a href=\"https:\/\/bahtera.jp\/en\/cost-management-indonesia\/\" class=\"st-cardlink\" aria-label=\"Cost Management Systems in Indonesia\">\r\n\t\t\t\t<div class=\"kanren st-cardbox\" >\r\n\t\t\t\t\t\t\t\t\t\t<dl class=\"clearfix\">\r\n\t\t\t\t\t\t<dt class=\"st-card-img\">\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" width=\"150\" height=\"150\" src=\"https:\/\/bahtera.jp\/wp-content\/uploads\/2025\/03\/indonesia-10-150x150.png\" class=\"attachment-st_thumb150 size-st_thumb150 wp-post-image\" alt=\"Infographic on cost management systems in Indonesian manufacturing, comparing process and job costing\" srcset=\"https:\/\/bahtera.jp\/wp-content\/uploads\/2025\/03\/indonesia-10-150x150.png 150w, https:\/\/bahtera.jp\/wp-content\/uploads\/2025\/03\/indonesia-10-100x100.png 100w\" sizes=\"(max-width: 150px) 100vw, 150px\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/dt>\r\n\t\t\t\t\t\t<dd>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<p class=\"st-cardbox-t\">Cost Management Systems in Indonesia<\/p>\r\n\t\t\t\t\t\t\t\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<div class=\"st-card-excerpt smanone\">\r\n\t\t\t\t\t\t\t\t\t<p>Mass production factories in Indonesia adopt comprehensive cost accounting. Custom order production factories adopt individual cost accounting.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<p class=\"cardbox-more\">\u7d9a\u304d\u3092\u898b\u308b<\/p>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/dd>\r\n\t\t\t\t\t<\/dl>\r\n\t\t\t\t<\/div>\r\n\t\t\t\t<\/a>\r\n\t\t\t\t\n<div class=\"article-point\" id=\"key-takeaways\">\n<h2 class=\"article-point-title\">What this article covers<\/h2>\n<ul>\n<li>Job order costing aggregates costs per order and calculates manufacturing costs based on actual performance.<\/li>\n<li>IFRS recognizes four inventory valuation standards: FIFO, moving average method, standard cost method, and total average method.<\/li>\n<li>In trading company operations, purchasing, work, and accounting are linked by order number, similar to Make-To-Order factories.<\/li>\n<li>Process costing aggregates costs over a period and divides by production quantity to calculate the manufacturing cost per unit.<\/li>\n<li>In Indonesian Make-To-Order factories, cost aggregation per order number is possible, but systemization is needed as order numbers increase.<\/li>\n<\/ul>\n<\/div>\n<p><script type=\"application\/ld+json\" id=\"wprestapi-ai-jsonld\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"BlogPosting\",\"@id\":\"https:\/\/bahtera.jp\/en\/mto-mts\/#article\",\"headline\":\"Differences and Application Conditions of Job Order Costing and Process Costing\",\"description\":\"Job order costing aggregates costs per order and calculates manufacturing costs based on actual performance. IFRS recognizes four inventory valuation\u2026\",\"mainEntityOfPage\":{\"@type\":\"WebPage\",\"@id\":\"https:\/\/bahtera.jp\/en\/mto-mts\/\"},\"inLanguage\":\"en\",\"datePublished\":\"2021-03-12T22:56:34\",\"dateModified\":\"2026-08-05T20:02:05\",\"author\":{\"@type\":\"Person\",\"name\":\"yamazou\"}},{\"@type\":\"ItemList\",\"@id\":\"https:\/\/bahtera.jp\/en\/mto-mts\/#key-takeaways\",\"name\":\"What this article covers\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Job order costing aggregates costs per order and calculates manufacturing costs based on actual performance.\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"IFRS recognizes four inventory valuation standards: FIFO, moving average method, standard cost method, and total average method.\"},{\"@type\":\"ListItem\",\"position\":3,\"name\":\"In trading company operations, purchasing, work, and accounting are linked by order number, similar to Make-To-Order factories.\"},{\"@type\":\"ListItem\",\"position\":4,\"name\":\"Process costing aggregates costs over a period and divides by production quantity to calculate the manufacturing cost per unit.\"},{\"@type\":\"ListItem\",\"position\":5,\"name\":\"In Indonesian Make-To-Order factories, cost aggregation per order number is possible, but systemization is needed as order numbers increase.\"}]}]}<\/script><\/p>\n<h2>Similarities in Business Flow Between Trading Companies and Make-To-Order Factories<\/h2>\n<p>Previously, I commuted to a high-rise building in central Jakarta for about six months to build a business system. While I usually visit factories filled with the sounds of press and molding machines, riding the high-speed elevators of an intelligent building housing offices of globally renowned companies and Japan&#8217;s four major trading companies was a completely new experience.<\/p>\n<p>Trading companies provide two types of services: inventory sales of purchased goods and project-based billing for ordered equipment sets using the percentage-of-completion method. After receiving an order, they place purchase orders for necessary materials and record all costs incurred during the project period as work-in-progress linked to the order number.<\/p>\n<p>During system operation support, a notable internal issue was the personality differences between the sales and accounting departments. Japanese expatriates wanted to quickly process work and accumulate sales results, while Indonesian accounting managers focused on precise numbers for tax-related accounting processes.<\/p>\n<p>When Japanese expatriates requested the accounting department to &#8220;issue this invoice,&#8221; there was no linkage indicating which order number or shipment (work) the invoice was based on. Consequently, Indonesian accounting managers often complained, &#8220;Japan tells us to calculate profits and losses by business division and order number, yet Japanese expatriates provide no basis for invoices.&#8221;<\/p>\n<p>In trading company operations, the entire flow from order to purchasing, work, and accounting is linked by order number. Make-To-Order (MTO) factories have a similar business flow with the following characteristics:<\/p>\n<div class=\"graybox\">\n<div class=\"maruno\">\n<ol>\n<li>The flow from order to design, purchasing, manufacturing, shipping, and sales. Purchase orders and work performance are managed per order number, and the design department redraws blueprints based on customer designs.<\/li>\n<li>Material costs are based on order prices, while labor and manufacturing overhead costs are accumulated by multiplying actual work hours by wage rates and allocation rates.<\/li>\n<li>Inventory management is broadly categorized into materials, work-in-progress, and finished products, without managing work-in-progress quantities per process.<\/li>\n<li>Comparing budget and actual performance during estimate creation is necessary.<\/li>\n<li>While many items are ordered as needed, common items are subject to inventory management.<\/li>\n<\/ol><\/div>\n<\/p><\/div>\n<p>In custom production, costs vary per order number, necessitating such cost aggregation. Conversely, with fewer orders and shorter manufacturing lead times, this type of order-based management can be handled manually using Excel.<\/p>\n<p> <img decoding=\"async\" alt=\"\" class=\"size-full wp-image-87550 aligncenter\" height=\"383\" src=\"https:\/\/bahtera.jp\/wp-content\/uploads\/2021\/03\/1-3.jpg\" width=\"549\" srcset=\"https:\/\/bahtera.jp\/wp-content\/uploads\/2021\/03\/1-3.jpg 549w, https:\/\/bahtera.jp\/wp-content\/uploads\/2021\/03\/1-3-300x209.jpg 300w\" sizes=\"(max-width: 549px) 100vw, 549px\" \/> <\/p>\n<p>In Indonesia, many Make-To-Order factories struggle with cost management, often requesting systemization of production management tasks. In most cases, they seek cost aggregation per order number rather than tracking material flow through inventory transactions, equating production management with cost management.<\/p>\n<h2>The Ambiguity of the Term Process Costing<\/h2>\n<p>Many of our Indonesian manufacturing clients are motorcycle and automobile parts manufacturers or electronic device component manufacturers. These companies engage in mass continuous production to supply parts for consumer goods like cars, bikes, and printers, maintaining a certain level of inventory for Make-To-Stock (MTS) production.<\/p>\n<p>In such environments, the high volume of orders makes it challenging to accumulate material, labor, and manufacturing overhead costs per order number as in Make-To-Order production. Since the same costs generally occur in continuous production, calculating costs individually per order number is unnecessary.<\/p>\n<p>Generally, to understand the manufacturing costs of factories engaged in large-scale forecast production, &#8220;process costing&#8221; is used, defined as follows:<\/p>\n<div class=\"graybox\">\n<div class=\"maruck\">\n<ul>\n<li>Aggregate costs incurred over a certain period and divide by production quantity to calculate the manufacturing cost per unit.<\/li>\n<\/ul><\/div>\n<\/p><\/div>\n<p>This definition is easy to visualize when applying the three-part method (inventory accounting method), which calculates manufacturing costs by subtracting the beginning inventory and costs incurred during the month from the ending inventory.<\/p>\n<div class=\"graybox\">\n<div class=\"maruno\">\n<ol>\n<li>Beginning material inventory + material purchase costs during the month &#8211; ending material inventory = material costs incurred (input) during the month<\/li>\n<li>Beginning work-in-progress inventory + (material costs incurred + labor costs + manufacturing overhead costs) &#8211; ending work-in-progress inventory = manufacturing costs<\/li>\n<li>Beginning finished goods inventory + manufacturing costs during the month &#8211; ending finished goods inventory = cost of goods sold<\/li>\n<\/ol><\/div>\n<\/p><\/div>\n<p>By calculating costs incurred over a certain period (usually one month) using the three-part method and dividing by production quantity, the manufacturing cost per unit can be determined, assuming an actual inventory count is conducted at the end of the month to determine ending inventory levels.<\/p>\n<div class=\"graybox\">\n<div class=\"maruck\">\n<ul>\n<li>The three-part method assumes an actual inventory count to determine ending inventory levels.<\/li>\n<\/ul><\/div>\n<\/p><\/div>\n<p>Is it impossible to calculate manufacturing costs without an actual inventory count at the end of the month? No, by implementing a cost management system, the total average method (Average Cost) can be used to calculate the total average unit cost of materials as the input cost for the initial process and the total average unit cost of work-in-progress as the input cost for the final process, thereby determining the total average unit cost of products (manufacturing cost per unit).<\/p>\n<div class=\"graybox\">\n<div class=\"maruno\">\n<ol>\n<li>(Beginning material inventory + material purchase amount during the month + indirect material receipts during the month) \/ total quantity = total average unit cost of materials<\/li>\n<li>Total average unit cost of materials x input quantity to completed work-in-progress = direct material costs (work-in-progress) during the month<\/li>\n<li>Direct material costs + labor costs + manufacturing overhead costs = work-in-progress costs during the month<\/li>\n<li>(Beginning work-in-progress inventory + work-in-progress costs during the month) \/ total quantity = total average unit cost of work-in-progress<\/li>\n<li>Total average unit cost of work-in-progress x input quantity to completed products = previous process (products)<\/li>\n<li>Direct material costs + labor costs + manufacturing overhead costs = manufacturing costs incurred (input) during the month (final process)<\/li>\n<li>(Beginning finished goods inventory + manufacturing costs incurred during the month) \/ total quantity = total average unit cost of products<\/li>\n<li>Total average unit cost of products x sales quantity during the month = cost of goods sold during the month<\/li>\n<\/ol><\/div>\n<\/p><\/div>\n<figure class=\"bahtera-article-figure\" style=\"clear:both;display:block;float:none;width:fit-content;max-width:100%;margin:12px auto;text-align:center;\"><img decoding=\"async\" alt=\"cost\" class=\"alignnone size-full wp-image-25002\" height=\"428\" src=\"https:\/\/bahtera.jp\/wp-content\/uploads\/cost-1.png\" width=\"688\" srcset=\"https:\/\/bahtera.jp\/wp-content\/uploads\/cost-1.png 688w, https:\/\/bahtera.jp\/wp-content\/uploads\/cost-1-300x187.png 300w\" sizes=\"(max-width: 688px) 100vw, 688px\" \/><figcaption style=\"margin:6px 0 0;color:#666;font-size:0.9em;line-height:1.6;\">Key points of the total average method in process costing are as follows:<\/figcaption><\/figure>\n<div class=\"graybox\">\n<div class=\"maruno\">\n<ol>\n<li>The total average unit cost becomes the input cost for completed work-in-progress or products in the next process (input based on production quantity).<\/li>\n<li>Input quantity x total average unit cost = previous process costs (direct material costs for the initial process).<\/li>\n<\/ol><\/div>\n<\/p><\/div>\n<p>These are examples of process costing using the three-part method and total average method. However, without a cost management system, process costing using the total average method is nearly impossible, so most Japanese forecast production factories in Indonesia adopt Excel-based standard costing.<\/p>\n<h2>Four Costing Standards Recognized for Convenience by International Accounting Standards<\/h2>\n<p>Ideally, the most accurate costing method is job order costing. However, in mass continuous production, even with a high number of orders, the costs incurred are generally the same. Therefore, IFRS (International Financial Reporting Standards) recognizes four methods for convenience: FIFO, moving average method, standard cost method, and total average method, for cost calculation and inventory valuation.<\/p>\n<p>The FIFO method involves selecting the earliest inventory for each withdrawal. The moving average method requires updating the average unit cost at the time of receipt. These methods aim to accurately evaluate inventory assets at the time of withdrawal and are seen in systems adopting the perpetual inventory method, which generates accounting entries for each inventory transaction.<\/p>\n\n<h2>Frequently Asked Questions: MTO and MTS Costs<\/h2>\n<p>The direction of calculations for order production and forecast production.<\/p>\n<h3>Why is job order costing suitable for MTO?<\/h3>\n<p>Due to different specifications and lots for each project, tracking costs per order aligns with reality.<\/p>\n<h3>Why is process costing suitable for MTS?<\/h3>\n<p>Since homogeneous products are processed over time and stages, average aggregation is easier to manage.<\/p>\n<h3>How is it handled in mixed factories?<\/h3>\n<p>Methods are divided by line or product group, and allocation rules for common costs are agreed upon in advance.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Job order costing aggregates costs per order, while process costing aggregates costs over a period. IFRS recognizes four inventory valuation methods.<\/p>\n","protected":false},"author":2,"featured_media":98025,"parent":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[624],"tags":[],"class_list":["post-94486","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cost-management"],"_links":{"self":[{"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/posts\/94486","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/comments?post=94486"}],"version-history":[{"count":3,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/posts\/94486\/revisions"}],"predecessor-version":[{"id":103858,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/posts\/94486\/revisions\/103858"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/media\/98025"}],"wp:attachment":[{"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/media?parent=94486"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/categories?post=94486"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/tags?post=94486"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}