Question

please write three complete and well-composed paragraphs in which you use an example, a company that operates where you live. The company you select as an example must be a company that manufactures a product, not a service or merchandising company. Describe what product it makes and whether you think it uses the job-order or process costing method. You don’t have to actually know for certain, but write what you think they use, and explain why you think they use that type of costing method.

Answer 1

Company selected is Paint manufacturing firm.

The company manufactures paints for interior uses of housing and construction work. The production is mainly for sale in market place and no direct sale to consumers. The production units compose of different sizes based on market requirements.

The company uses process costing. The reason being raw materials are processed in one department and then flow through to other departments for manufacture of different other products. Process costing is used because the production is not as per customer order and specification. The production takes place on a mass scale and also the production takes place in standardized units like 1 liter, 2 lire, 5 liter etc. Also there is process loss involved at various stages of production.

Costs are accumulated at departmental level for direct material, direct labor and manufacturing overheads. All these accumulated costs are accounted for by calculating cost per equivalent unit. This cost per equivalent unit is used in computing cost of closing work in process and cost of goods completed and transferred to next division.