Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Service Company vs. Merchandising Company

Financial Accounting

4. Merchandising Operations

Service Company vs. Merchandising Company

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Multiple Choice

Which type of company is least likely to use a process costing system?

Manufacturing company

Service company

Merchandising company

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Verified step by step guidance

Understand the concept of process costing: Process costing is a method used to allocate costs to products that are mass-produced in a continuous flow, such as in manufacturing industries. It is most suitable for industries where products are indistinguishable from one another, like chemicals, textiles, or food production.

Identify the characteristics of the three types of companies mentioned: Manufacturing companies produce physical goods, often in large quantities, making them suitable for process costing. Merchandising companies buy and sell finished goods without altering them, so they do not typically use process costing. Service companies provide intangible services rather than physical products, making process costing irrelevant for them.

Analyze why a service company is least likely to use process costing: Since service companies do not produce physical goods, they do not have production processes that require cost allocation to units of output. Instead, they may use job costing or other methods to track costs related to individual services or clients.

Compare the suitability of process costing for the other two types of companies: Manufacturing companies are the most likely to use process costing because they often produce homogeneous products in a continuous process. Merchandising companies, while dealing with physical goods, do not manufacture them, so process costing is not applicable.

Conclude that service companies are least likely to use a process costing system because their operations do not involve the production of physical goods, which is the primary context where process costing is applied.