Multiple Choice
Which of the following statements is FALSE with respect to job-order costing and process costing?
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4. Merchandising Operations
Service Company vs. Merchandising Company
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Which of the following businesses is most likely to use a process costing system?
A
A retail store selling clothing
B
A consulting firm offering management advice
C
A law firm providing legal services to clients
D
A company that manufactures paint in large batches
Verified step by step guidance1
Understand the concept of process costing: Process costing is a method used to allocate costs in industries where production is continuous and products are indistinguishable from one another, such as manufacturing paint, chemicals, or food products.
Analyze the characteristics of the businesses listed: A retail store selling clothing, a consulting firm offering management advice, and a law firm providing legal services typically deal with unique, individualized products or services, which are better suited for job costing rather than process costing.
Identify the business that fits the process costing criteria: A company that manufactures paint in large batches involves continuous production of homogeneous products, making it ideal for a process costing system.
Explain why process costing is appropriate for the paint manufacturing company: Costs are accumulated for each process or department, and the total cost is divided by the number of units produced to determine the cost per unit. This is efficient for large-scale, uniform production.
Conclude that the correct answer is the company manufacturing paint in large batches, as it aligns with the characteristics of a process costing system.
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