Chapter 3, Problem 1QC

To determine

To identify: For which option job costing would not be appropriate.

Answer to Problem 1QC

Option c. Job costing would not be appropriate for manufacturer of mass produced carbonated beverages.

Explanation of Solution

Job costing: It is a process which is used by the companies to identify the costs incurred in manufacturing one unit of product. Job costing is used by those companies which manufactures custom ordered product or unique products or relatively small batches of different products. Each batch or each unique product will be considered as a separate job. The cost incurred in different jobs might vary in terms of direct material used, direct labor and manufacturing overhead. Therefore, job costing is used to track the cost incurred on each job separately. This is different from the process costing. Process costing is used by the companies which mass produces identical products. Therefore, the cost incurred on each unit will be almost same. In process costing, manufacturing costs incurred are averaged so that each identical unit bears the same cost.

a. Law firm will use job costing method as they will charge each customer on the basis of cost incurred on serving the client. Hence option a is incorrect.

b. Electrician will use the job costing as he will charge each customer based on the cost of performing a particular job for that specific customer. Hence option b is incorrect.

c. Manufacturer of mass produced carbonated beverages will use process costing method instead of job costing as the manufacturer is producing large quantity of identical goods and per unit cost of manufacturing can be identified by averaging total manufacturing costs incurred. Hence option c is correct.

d. Manufacturer of custom-ordered production equipment will use job costing method to determine the cost incurred in terms of direct material, direct labor and manufacturing overhead in manufacturing that particular equipment. Hence option d is incorrect.