 In this presentation, we will compare a job cost and process cost system. When we produce inventory, when we are a manufacturing company, we typically will be using either a job cost system or a process cost system. And the difference between these two, which one will we use? By course, each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more, like QuickBooks backup files, when applicable. So once again, click the link below for a free month membership to our website and all the content on it. We'll typically depend on the type of inventory that we produce. So let's go through the characteristics that will generally be apparent or be present when we use a job cost system. And when we look at these, we want to compare and contrast the two. When would we use a job cost system? When would we use a process cost system? As we start to work through a problems of a job cost system and process cost system, we'll start to see why these characteristics of inventory are going to be those that will distinguish whether we choose to be a job cost system or a process cost system. For now, just note that a job cost system means that we're going to apply the cost of the inventory to particular jobs. So we're going to have a particular job, we're going to assign the costs to that job, as opposed to a process cost system, where we're going to assign costs to a process as we go. So as we think of this, we're going to think of the example of custom guitars, pretty much anything custom that you can think of, you can that's one type of thing that would basically usually be in a job cost system. So if we get an order for a guitar, it's going to be a specific type of guitar, and we're going to custom make this guitar in accordance with the order, we would typically use more of a job cost system. It's also something that if you think of custom for like construction and stuff like that, construction jobs are typically going to be different in nature. And therefore we typically use a job cost system. So that's the first characteristic we'll have if it's a custom order, then we're typically going to use a job cost system. Now I would use that characteristic in order to then think about the other characteristics as following from it, meaning if we do some type of manufacturing business that's custom in some way, then the other things are going to follow from if we make custom guitars, if we make if we do any kind of construction, it's going to be custom to whatever needs to be done, then we're typically going to be doing a job cost system. Our next characteristic are heterogeneous products or services. And that just means that they're different. And the reason I use this word is because sometimes you'll see it in textbooks. So heterogeneous and homogeneous, heterogeneous being the opposite meaning difference and homogeneous meaning the same. So this of course follows that we can just say of course that the types of things we're producing are not all exactly the same. And that follows from the idea that they're they're custom they're different in some way we've got some differences in the production that we have. And because of those differences, we cannot do things like just allocate the costs evenly to whatever we're making if one guitar we make is a lot more detailed than another guitar we make, then we cannot evenly allocate the costs. And that's going to be one of the reasons we use a job cost system if we do a construction job and one happens to be a lot larger than another, then we can't allocate the same cost to those two jobs or we shouldn't, we should find some other way and that's why we're going to use a job cost system as opposed to a process cost system, low production volume. Now, low production volume means that we're not producing as many of the items possibly as in a job cost type of inventory system, meaning if we're making custom guitars, then we're going to produce far less of them. That's okay, because we're going to charge a higher price for the ones that we produce, as opposed to if we were just stamping out the guitars and they're all the same, then the idea there is that we're going to have a high volume, less customization. So a job cost system follows from the idea that we're going to have some differentiation, some customness, and that means that the products are going to be different in nature. Differences in nature of whatever we make typically would mean that the production volume will be lower. And then we're going to have high product flexibility. Again, that that's going to follow from the idea that they're custom. So if something's going to be different in nature of anything that we're making that's going to be different, and we might just specialize in, even if we're just specializing guitars, and even if it's fairly limited, if we have the more customization we have within that guitar, the more we're going to need to have a job cost system as opposed to a process cost. If we're in construction, of course, we might do the same type of construction all the time, but the jobs that we go to and deal with are typically going to be different just by the nature of the job. And so we're going to have to have differences there. There'll be flexibility that we will have basically based on the fact that they're going to be custom in some manner. Also the job cost system will typically have higher value, higher dollar values for the products as opposed to a process cost system because and that leads through the customization. If we're going to customize it, then it's going to take more time and it's going to cost more as opposed to if it was all just being the same thing, our goal there is to lower costs and have it be typically cheaper. So if we can contrast this to a process cost system, the idea of a process cost system is we're going to apply the costs to the process. And the reason we can do that is because all the things that we make are going to be, in essence, the same. So that's going to be our route, again, that we want to think about as opposed to something being customized. Here everything, it is what it is, you get what you get, it's all going to be the same. So we don't need to apply the costs in the same way. We need to apply the costs all evenly to the units. So what we need to do then, we can do that by using a process cost system, assigning costs as they go through the process, rather than two particular units of inventory, particular jobs. So in this, I would think of something like taffy, if we're making taffy or caramel candies or something like that, they're all the same, we're not going to vary the caramel candies, they're all the same. So we're producing our inventory, other things like oil is going to be like that for processing oil, it's all the same at the end of the process. So our goal here is to make everything the same and lower costs. So we're going to have then repetitive procedures, everything is going to be the same. And our goal here again is just to make everything the same, even mechanized, if possible, have the whole machine make the taffy and go through just the process of making the taffy. And once we automate the system because they're all the same, then that should be lowering the cost. We're going to have homogenous product products or service, as opposed to heterogeneous. So they're all the same. And again, this is probably the one that here you want to focus in on or the fact that they're not custom. So we don't have custom products, they're all going to be the same in nature. And therefore, everything else pretty much derives from that. We're going to have high production value. That's the point of us making everything the same. We're going to say, yeah, there is no variance, you want caramels with different kinds of things in them or whatnot, we don't do that. We just make the caramels, they're all the same. And we have a pretty low cost because of that. The more we try to customize the caramels, then the more it's going to be, you know, difficult for us to automate the process, then we're going to have more customization. So if we keep them all the same, we can have high production volume and lower cost, low production flexibility, again, that follows from them all being pretty much the same and not being customized. So we're going to have, we're not going to vary what we produce, we're going to say that these are all we're all going to produce the same thing for every every unit is going to be the same. So if we look at these together, then the job costs and the process cost system, remember that the job cost system has the custom order as opposed to non custom orders are just repetitive procedures on the process cost system. So this side's going to be custom. This kind of side is not custom. And that means that we're going to have everything be repeated. It's just it is going to be what it is. And then we're going to have heterogeneous production for the for the job costs versus the process cost homogenous. And again, this this kind of falls out from the fact that these are custom and these are non custom. So these are going to be all different products and services through that customization. These will all be the same. The job cost system, low production volume, again, because they're all different in nature and a high production volume for the process cost system, because they're all the same, we can then scale up and be able to produce a lot more than the job cost system, high product flexibility, we can vary that's the point at the point of having them be custom. On the process cost system, we have low product flexibility. And again, that's the that's the point because that's what leads us to be able to produce more at that time.