17-1SE-b - Horngren'S Financial And Managerial Accounting

Question

Distinguishing between job order costing and process costing

Would the following companies most likely use job order costing or process costing?

b. A manufacturer of specialtywakeboards

Step-by-Step Solution

Answer

A manufacturer of specialty wakeboards is most likely to use a job-order costing system.

Cost of production

The cost of production is defined as the total cost incurred by the company to produce a specific quantity of the product. 

Job order costing

A job order costing system is the system that tracks the cost of manufacturing each product. This costing method is usually adopted when the manufacturer produces the products when customers order a small quantity or unique product batch. Hence, specialty wakeboard manufacturers are most likely to use a job-order costing system.