Multiple Choice
Which type of company is least likely to use a process costing system?
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4. Merchandising Operations
Service Company vs. Merchandising Company
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Which of the following is a characteristic of process costing?
A
Each product is unique and easily identifiable.
B
Costs are accumulated by department or process for a period of time.
C
Costs are assigned to specific jobs or batches.
D
It is primarily used by service companies.
Verified step by step guidance1
Understand the concept of process costing: Process costing is a method used in industries where production is continuous, and products are indistinguishable from one another, such as in manufacturing of chemicals, beverages, or textiles.
Identify the key characteristic of process costing: Costs are accumulated by department or process for a specific period of time, rather than being assigned to individual jobs or batches.
Compare process costing with job costing: Unlike process costing, job costing is used when products are unique and identifiable, and costs are assigned to specific jobs or batches.
Recognize the industries where process costing is applied: Process costing is primarily used in manufacturing industries rather than service companies, as it deals with homogeneous products.
Select the correct characteristic: Based on the explanation, the correct characteristic of process costing is 'Costs are accumulated by department or process for a period of time.'
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