Chapter 20, Problem 1DQ

To determine

The Main factor to be considered for determining the Costing methods to be used is based on the type of product which is dealt in. The Business dealing with customized products shall apply Job Costing and those dealing in homogenous products shall apply Process costing.

To Determine: TheFactors need to be considered for application of costing methods.

Answer to Problem 1DQ

Solution: TheBusiness dealing in customized products which are made specifically as per customer requirement shall apply Job costing. However, the firms used to produce homogenous products going through different processes before being transferred to finished goods shall apply Process costing.

Explanation of Solution

The Job costing method is used for the business houses dealing in customized products produced specifically on the request of customer. Such products are unique in nature and costing involved in producing such products varies from each other. Therefore, separate job cost sheet is prepared for such specific order. The examples for such applications are Furniture made on specific request of customer, Car repairs done at car service station.

The Process costing is costing method applicable for the firms involved in the manufacturing of homogenous products and such products passes through various processes before get transferred to finished products. The Examples where such costing is applicable is fabrication of steel almirah where the product passes to different processes like fabrication, welding, fitting and painting. Another example being Car manufacturers.

Conclusion

To conclude, it can be said that when customized product is made then job costing is best technique and when homogenous products are produced then the process costing shall be applied.