Multiple Choice
Which of the following businesses is most likely to use a process costing system?
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5. Inventory
Merchandising Company vs. Manufacturing Company
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Which of the following types of firms normally carry inventory?
A
Only manufacturing companies
B
Both merchandising and manufacturing companies
C
Only service companies
D
Neither merchandising nor manufacturing companies
Verified step by step guidance1
Understand the concept of inventory: Inventory refers to goods that a company holds for sale or materials used in production. It is a key asset for certain types of businesses.
Identify the types of companies: Service companies, merchandising companies, and manufacturing companies are the three main types of firms. Service companies typically do not carry inventory as they provide intangible services rather than physical goods.
Analyze merchandising companies: Merchandising companies purchase finished goods and resell them to customers. These companies carry inventory in the form of goods available for sale.
Analyze manufacturing companies: Manufacturing companies produce goods from raw materials. They carry inventory in three forms: raw materials, work-in-progress, and finished goods.
Conclude based on the analysis: Both merchandising and manufacturing companies normally carry inventory, as it is essential to their operations. Service companies, on the other hand, do not typically carry inventory.
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