Firms should use a process costing system when they produce products that:
A)Are semi-homogeneous.
B)Pass through a series of inspection points.
C)Pass through a series of manufacturing departments.
D)Have a small batch size.

Question

Quizplus · Accepted Answer

Process costing system is appropriate for products that pass through a series of manufacturing departments. This is because process costing system assigns costs to each department and calculates the cost of each unit based on the total cost of the production process. Therefore, it is most suitable for products that are produced using a sequential production process. Option A is incorrect because semi-homogeneous products can also be produced using other costing systems depending on the level of homogeneity. Option B is incorrect because passing through a series of inspection points is not a sufficient condition for using process costing system. Option D is incorrect because small batch sizes are best handled by job costing system.

Firms Should Use a Process Costing System When They Produce