Multiple Choice
Which of the following would most likely use a job order costing system?
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4. Merchandising Operations
Service Company vs. Merchandising Company
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Which of the following is true of a process cost system?
A
It assigns costs to specific jobs or batches of products.
B
It is only applicable to companies that do not have inventory.
C
It is used primarily by service companies to track individual client costs.
D
It accumulates costs for each department or process within the company.
Verified step by step guidance1
Understand the concept of a process cost system: A process cost system is a method of cost accounting used by companies that produce large quantities of similar or homogeneous products. It accumulates costs for each department or process within the company rather than assigning costs to specific jobs or batches.
Compare the characteristics of a process cost system with the options provided: A process cost system does not assign costs to specific jobs or batches, as that is characteristic of a job order cost system. It is applicable to companies with inventory, and it is not primarily used by service companies to track individual client costs.
Focus on the correct characteristic: A process cost system accumulates costs for each department or process within the company. This is the defining feature of this system and aligns with the correct answer provided.
Relate the process cost system to industries: Process cost systems are commonly used in industries such as manufacturing, where production is continuous and products are indistinguishable from one another, such as in chemical production, food processing, or textiles.
Summarize the reasoning: Based on the characteristics of a process cost system, the correct answer is that it accumulates costs for each department or process within the company. This aligns with the nature of the system and its application in relevant industries.
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