Multiple Choice
Which of the following differs between job costing and process costing?
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4. Merchandising Operations
Service Company vs. Merchandising Company
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Which type of company is least likely to use a process costing system?
A
Merchandising company
B
Service company
C
Manufacturing company
Verified step by step guidance1
Understand the concept of process costing: Process costing is a method used to allocate costs to products that are mass-produced in a continuous flow or process. It is commonly used in industries where products are indistinguishable from one another, such as chemicals, textiles, or food production.
Identify the types of companies mentioned: The problem lists three types of companies—merchandising company, service company, and manufacturing company.
Analyze the characteristics of each type of company: A merchandising company buys and sells finished goods without altering them, a service company provides intangible services rather than physical goods, and a manufacturing company produces goods by transforming raw materials into finished products.
Determine which type of company is least likely to use process costing: Since process costing is used for physical goods produced in a continuous process, service companies are least likely to use this system because they do not produce physical goods.
Conclude the reasoning: Service companies focus on providing services rather than manufacturing or selling goods, making process costing irrelevant to their operations.
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