Multiple Choice
Cherokee Incorporated is a merchandiser. Which of the following best describes a key difference between a merchandising company and a service company?
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4. Merchandising Operations
Service Company vs. Merchandising Company
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Which of the following would most likely use a job order costing system?
A
A grocery store
B
A fast-food restaurant
C
A gasoline station
D
A custom furniture manufacturer
Verified step by step guidance1
Understand the concept of job order costing: Job order costing is a system used to assign costs to specific jobs or orders, typically when products or services are customized or produced in small batches.
Analyze the characteristics of each option: A grocery store, fast-food restaurant, and gasoline station typically produce or sell standardized products in large quantities, which aligns more with process costing rather than job order costing.
Focus on the custom furniture manufacturer: Custom furniture manufacturing involves creating unique products tailored to individual customer specifications, which requires tracking costs for each specific job or order.
Relate the concept to the correct answer: Since job order costing is ideal for businesses that produce customized goods, the custom furniture manufacturer is the most appropriate example.
Conclude the reasoning: The custom furniture manufacturer uses a job order costing system because it needs to allocate costs to individual jobs based on materials, labor, and overhead specific to each custom order.
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