Question

A process costing system would most likely be used for all of the following except?

a) a manufacturer of plywood sheets

b) a men's barbershop

c) a tailor

d) a hay farmer

Boston Furniture Company manufactures several steel products. It has three production departments: Fabricating, Assembly, and Finishing. The service departments include Maintenance, Material Handling, and Designing. Currently, the company does not allocate service department costs to the production departments. John Baker, who has recently joined the company as the new cost accountant, believes that service department rates should be developed and charged to the production departments for services requested. If the company adopts this new policy, the production department managers would be least likely to

a. replace outdated and inefficient systems.

b. be encouraged to control costs.

c. request an excessive amount of service

d. refrain from using necessary services.

Answer 1

1. A process costing system is defined as a system of accouting of costs where costs are charged to processes or operations and averaged over units produced. It is applied in case of a manufacturer of plywood sheets, a men's barbershop and a hay farmer. It is however, not apllied in case of a tailor. Hence option c is correct.

2. The production managers in the above question would be least likely to -

d. refrain from using necessary services.

The production managers would want to replace outdated and inefficient systems, be encouraged to control costs and request an excessive amount of service.

Hence option d is correct.