Multiple Choice
A job order costing system is most likely used by which of the following types of companies?
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4. Merchandising Operations
Service Company vs. Merchandising Company
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Which of the following differs between job costing and process costing?
A
The requirement to record revenues
B
The use of financial statements
C
The need to track cash flows
D
The method of assigning costs to products
Verified step by step guidance1
Understand the key difference between job costing and process costing: Job costing assigns costs to specific jobs or projects, while process costing assigns costs to processes or departments for mass production of similar items.
Recognize that both job costing and process costing require recording revenues, using financial statements, and tracking cash flows. These are common accounting practices and do not differ between the two methods.
Focus on the method of assigning costs to products, as this is the primary distinction. In job costing, costs are traced to individual jobs, whereas in process costing, costs are averaged over all units produced in a process.
Consider examples to clarify the difference: Job costing is used in industries like construction or custom manufacturing, where each job is unique. Process costing is used in industries like chemicals or food production, where products are homogeneous.
Conclude that the correct answer is 'The method of assigning costs to products,' as this is the fundamental difference between job costing and process costing.
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