[NOISE] [MUSIC] One way in which we can think about costing systems is by distinguishing them according to cost object type. Now, there are many types of costing systems, and this distinction is usually broken down into two types, job costing systems and process costing systems. Under job costing systems, the cost object is usually a unit, or multiple units, of a distinct or customized product or service, usually these are created in low volume. In contrast, the process costing system is useful for when in a cost object is masses of identical or similar units of products or services. Often firms have a continuum between these two. The products and services that they create are a hybrid of both multiple units as well as customized units. You can think of a firm that has many different basic inputs into a customized product, and so they might use something like a process costing system for those basic units, but then use a job costing system for those customized items that they produce. So, now let's talk about some example firms that might find job costing and process costing systems useful. Under job costing systems, you might think of law firms or consulting firms. Those firms provide a highly customized product that are engagement or client specific. In contrast, producers of computers or food products might find process costing systems more useful. The reason being, those are produced at high volumes, and they're quite homogenous. But it's not always the case that job costing systems are used by service based firms, and process costing systems are used by manufacturing companies. As a matter of fact, you can think of a producer or manufacturer of planes or yachts, or other high end items. Those items are usually customized, or take a long period of time to produce, and so rather than multiple units being produced at once, the firm concentrates on only a few. Those types of firms might find job costing systems to be more useful. Likewise, a mail delivery service or express delivery service might find process costing. That's a service-based firm. They're not manufacturing anything, but high volumes of homogenous services being provided over and over again would create the need for a process-based costing system. Let's talk about the distinction a little bit more. Under job costing, the costs that are generated by the firm, are accumulated by individual job. So, if we think about a manufacturer, we would have direct materials, direct labor, and manufacturing overhead, and those costs would be organized as they become part of the work in process inventory according to job. We would have separate records for different jobs, job one, job two, and job three in this figure, but then as those jobs are finished we can think about a finished goods inventory, and then when those units are sold they become cost of goods sold. In contrast, under a process costing system, it doesn't accumulate cost by job, but rather by production department or activity. The same starting point exists, direct materials, direct labor, and manufacturing overhead, and these costs flow through the different departments as the different activities are completed. So, as you can see, the distinction between job costing and process costing isn't necessarily in the beginning or the end version of the product, but rather, how costs are organized along the way.