Generally, companies that manufacture unique products use job order costing systems. Examples of these types of companies are accounting firms and manufacturers of custom machines.
Companies that produce identical units through a series of production steps or processes, such as soft drink companies, surfboard manufacturers, and medical equipment manufacturers, use process costing systems.
Process costing is used to make large quantities of homogeneous goods or products. The example that often comes to mind for process costing is a paint manufacturer. It is important to note that each process is a separate department and that direct materials, direct labor and overhead are assigned to work-in-process.
A job cost record is a document that shows the direct materials, direct labor, and manufacturing overhead costs for an individual job and allows the company to track the cost of individual jobs.
A typical journal entry for the purchase of material for a manufacturing company would be as follows:
Dr. Raw Material Inventory $100
Cr. Accounts Payable $100