Q.17-3RQ - Horngren'S Financial And Managerial Accounting

Question

Question: What types of companies use process costing systems?

Step-by-Step Solution

Answer

Answer:

Soft drink companies, surfboard manufacturers, and medical equipment manufacturers use the process costinh system for computing the cost of production.

Step 1: Cost of goods sold

Cost of goods sold is computed by the company to know about the profit earned by the company on the goods produced and sold during the reporting period. It is shown in the income statement as a deduction from the gross revenue generated by the company.

Step 2: Process costing system

Companies that produce similar products through a series of production steps or processes use the process costing system. Soft drink companies, medical equipment manufacturers, etc., use this process costing system.