17-1SE-f - 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?

f. A custom home builder

 

Step-by-Step Solution

Answer

A custom home builder is most likely to use a job-order costing system.

Costing of the product

Costing is defined as the total expenses incurred by the company in producing the product or service. It is determined by the management of the company to decide the selling price of the product.

Custom home builders

Custom home builders work on a contract basis and manufacture the building according to the customer's demand. Hence, they use the job order costing system to determine the project's total cost.