Both job costing and process costing are valuable tools for recording and tracking the costs incurred by a firm in relation to production. Both approaches have their advantages and disadvantages and can be used separately or combined to make a hybrid system.

To start, job costing involves tracing the specific costs of materials, labor, and overhead to individual jobs. These costs are then examined to gauge efficiency, and performance, and determine if costs could be reduced. Job costing is best used for unique products. For example, suppose a company makes and sells unique skateboards. Customers choose a design they like and the company manufactures it. A job costing system would charge materials and labor to the production job linked to that specific skateboard.

Process costing, on the other hand, involves accumulating costs over a fixed period of time and then allocating them to all of the units produced in that period. Unlike job costing, process costing is best suited for companies that mass produce identical products. For example, a company that produces 100,000 bottles of glue a day would best benefit from a process costing system. Under process costing, the materials and labor used in the production process would be accumulated and then divided by the number of units produced, arriving at the cost per unit.

As the discussion question mentions, the consulting firm works for a single client under one consulting agreement. Although the consulting firm only serves one client, the nature of the business is unique. Consulting firms develop plans or strategies that are tailored to the customer. Firms that provide a unique product or service that is tailored to suit the needs of a specific customer would benefit most from job costing. The firm could track the costs incurred during the month (in relation to providing the service) and could use this information to determine how much to bill the client.

Am I understanding this correctly? or are there gaps?