Multiple Choice
Which type of company is least likely to use a process costing system?
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4. Merchandising Operations
Service Company vs. Merchandising Company
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Which type of costing system would a service company most likely use compared to a merchandising company?
A
A service company would most likely use job order costing, while a merchandising company would use process costing.
B
Both service and merchandising companies primarily use job order costing.
C
Both service and merchandising companies primarily use process costing.
D
A service company would most likely use process costing, while a merchandising company would use job order costing.
Verified step by step guidance1
Understand the difference between job order costing and process costing: Job order costing is used when products or services are customized or unique, while process costing is used for mass production of similar items.
Identify the nature of a service company: Service companies typically provide customized services tailored to individual clients, which aligns with the principles of job order costing.
Identify the nature of a merchandising company: Merchandising companies often deal with large quantities of similar products, which aligns with the principles of process costing.
Compare the options provided in the question: Analyze each option to determine which costing system is most appropriate for the type of company described.
Select the correct answer based on the analysis: A service company would most likely use job order costing, while a merchandising company would use process costing.
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