Chapter 5, Problem 1MC

Which of the following production characteristics is better suited for process costing and not job order costing?

1. Each product batch is distinguishable from the prior batch.
2. The costs are easily traced to a specific product.
3. Costs are accumulated by department.
4. The value of work in process is the direct material used, the direct labor incurred, and the overhead applied to the job in process.

To determine

Concept introduction:

Job order costing:

Job order costing is applied to the businesses which manufactured the product or provide the services according to the client’s order. As its names suggest, Job order costing is costing done for a particular job.

Process Costing System:

As its name suggests, process costing system is the branch of cost accounting which is applied where production of a product takes more than one processes to complete for example the production of shoes from leather goes through cutting, stitching and policing processes.

To choose:

The characteristic which is better suited for process costing and not job order costing

Answer to Problem 1MC

C. Costs are accumulated by department

Explanation of Solution

Explanation for correct answer:

If costs are accumulated by a department, then the Process costing is most suitable option. Hence the correct option is C.

Explanation for incorrect answers:

A. In case of distinguishable product batch production, the job order costing is most suitable. Hence this option is incorrect.

B. If costs are easily traced to a specificproduct; the job order costing is most suitable option. Hence this option is incorrect.

D. If costs are allocated to jobs, the job order costing is most suitable option. Hence this option is incorrect.