Multiple Choice
Which of the following companies is least likely to use job order costing?
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4. Merchandising Operations
Service Company vs. Merchandising Company
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Which of the following would be true for a service company?
A
It reports sales revenue from selling physical products.
B
It does not maintain inventory accounts on its balance sheet.
C
It purchases goods for resale to customers.
D
It records cost of goods sold as a major expense.
Verified step by step guidance1
Understand the nature of a service company: A service company primarily provides services rather than selling physical products. Unlike merchandising or manufacturing companies, it does not deal with inventory or goods for resale.
Analyze the first option: 'It reports sales revenue from selling physical products.' This is not true for a service company because it does not sell physical products; its revenue comes from providing services.
Evaluate the second option: 'It does not maintain inventory accounts on its balance sheet.' This is true for a service company because it does not hold inventory, as it does not sell physical goods.
Review the third option: 'It purchases goods for resale to customers.' This is not applicable to a service company, as it does not engage in the resale of goods.
Consider the fourth option: 'It records cost of goods sold as a major expense.' This is not relevant for a service company because it does not sell goods, and therefore, it does not have a cost of goods sold account.
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