Select the incorrect statement regarding service companies.
A) Service companies do not maintain a Finished Goods Inventory account.
B) Service companies accumulate their service costs in a Work in Process Inventory account similar to manufacturers.
C) Service companies may have raw material costs.
D) Understanding the cost of providing a service is just as important as knowing the cost of making a product.

Question

Quizplus · Accepted Answer

Service companies do not have a Work in Process Inventory account as they do not manufacture products. They also do not have a finished goods inventory account as their output is intangible services rather than physical products. Option A, C, and D are correct as service companies may have raw material costs (e.g. a catering company buying ingredients), understanding the cost of providing a service is important for pricing decisions and profitability analysis, and service companies do not maintain a finished goods inventory.

Select the Incorrect Statement Regarding Service Companies