Question

Question: Label each statement below as either true (T) or false (F).

1. The cost per equivalent unit is computed as the total costs of a process divided by the number of equivalent units passing through that process.

2. Service companies are not able to use process costing.

3. Costs per job are computed in both job order and process costing systems.

4. Job order and process operations both combine materials, labor, and overhead in producing products or services.

Short answer

1	True
2	False
3	False
4	True

Step-by-step solution

Definition of Process Costing

The costing method used by the business entity to allocate operational costs to the goods produced in mass is known as process costing. It is used by the business entity whose product passes through different processes.

Cost per equivalent units formula

The statement “the cost per equivalent unit is computed as the total costs of a process divided by the number of equivalent units passing through that process” is correct because the business entity calculates the cost per equivalent unit by using the formula given below:

$\mathrm{Cost}\mathrm{per}\mathrm{equivalent}\mathrm{unit}=\frac{\mathrm{Total}\mathrm{cost}\mathrm{incurred}\mathrm{in}\mathrm{process}}{\mathrm{Total}\mathrm{equivalent}\mathrm{units}\mathrm{produced}\mathrm{from}\mathrm{process}}$

Use of process costing by the service company

The statement “Service companies are not able to use process costing” is incorrect because the service company that provides the same service in large quantities can use process costing. For example, a hotel can use process costing to determine the cost incurred for each booking made by the customer.

Cost per job

The statement “costs per job are computed in job order and process costing systems” is false because it is only done under Job order costing. Under this costing method, each job is assigned with cost, and then product cost is calculated by determining the work done by each job.

Similarities between companies adopting job order and process costing

The statement “Job order and process operations both combine materials, labor, and overhead in producing products or services” is true because every manufacturing company, whether it is using a job order costing or process costing, has to combine the raw material, labor, and overheads for producing a finished good from raw material. The only difference that exists is in the process of allocating costs.