Multiple Choice
Which of the following would be considered primarily a merchandising business?
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4. Merchandising Operations
Service Company vs. Merchandising Company
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When using process costing, which type of company is most likely to apply this method to account for its production costs?
A
A service company that offers unique legal advice to clients
B
A manufacturing company that produces identical products in a continuous process
C
A service company that provides customized consulting services
D
A merchandising company that purchases and resells finished goods
Verified step by step guidance1
Understand the concept of process costing: Process costing is a method used to allocate production costs to units of output in industries where products are manufactured in a continuous flow and are indistinguishable from one another.
Identify the characteristics of companies that use process costing: These companies typically produce homogeneous products in large quantities, such as chemicals, beverages, or paper, where individual units cannot be differentiated.
Analyze the options provided: Evaluate each type of company mentioned in the problem to determine whether their production process aligns with the characteristics of process costing.
Eliminate options that do not fit: Service companies offering unique legal advice or customized consulting services, as well as merchandising companies that purchase and resell finished goods, do not produce identical products in a continuous process and are therefore unlikely to use process costing.
Select the correct option: A manufacturing company that produces identical products in a continuous process is the most likely to apply process costing to account for its production costs.
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Service Company vs. Merchandising Company practice set
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