Q17E - Horngren'S Financial And Managerial Accounting

Question

For each of the following products or services, indicate if the cost would most likely be determined using a job order costing system or a process costing system.

a. Soft drinks

b. Automobile repairs

c. Customized furniture

d. Aluminum foil

e. Lawn chairs

f. Chocolate candy bars

g. Hospital surgery

h. Pencils

Step-by-Step Solution

Answer

S.No.	Particulars	Classification of costing system
A	Soft drinks	Process costing system
B	Automobile repairs	Job order costing system
C	Customized furniture	Job order costing system
D	Aluminium foil	Process costing system
E	Lawn chairs	Process costing system
F	Chocolate candy bars	Process costing system
G	Hospital surgery	Job order costing system
H	Pencils	Process costing system

Step-by-Step Solution: Step 1: Costing System

 Manufacturing companies use a costing system to determine the total cost incurred by the company. The costing of products is done either by the process or job order costing system.

Step 2: Classify the costing system used by the soft drinks manufacturer

 The companies engaged in making soft drinks use a process costing system. It is so because the production of soft drinks passes through several cycles and is produced in large quantities.

Step 3: Classify the costing system used for the Automobile repairs

The automobile repairer uses a job order costing system to determine the cost of the repairing work because their work is based on a job basis and as per the customer's requirement.

Step 4: Classify the costing system used by the manufacturer of the customized furniture

 Job order costing system used by the customized furniture manufacturer as they work as per the customer's requirement. They manufacture the furniture in small size as per the customer's demand.

Step 5: Classify the costing system used by the manufacturer of Aluminium foil

The aluminum foil manufacturing companies use a process costing system because the foils are manufactured in mass quantities by passing through more than one process.

Step 6: Classify the costing system used by the manufacturer of Lawn chairs

The lawn chairs manufacturer uses the process costing system for determining the cost of production. It is so because they are engaged in single-line products produced in large quantities.

Step 7: Classify the costing system used by the manufacturer of chocolate candy bars

The chocolate candy bars manufacturer uses a process costing system for computing the total manufacturing cost. It is so because the candy bars are manufactured in large quantities.

Step 8: Classify the costing system used by the hospitals for surgeries

The cost of surgeries is determined by using the job order costing system because the cost of different surgeries is different. Also, it is service providing business. Hence, a job order costing system is used.

Step 9: Classify the costing system used by the manufacturer of pencils

The manufacturer of pencils uses the process costing system while determining the cost of production. It is so because the manufacturer of pencils produced pencils in mass quantities by passing through various processes.