Final answer:
Process costing is preferred over job-order costing in the production of large numbers of homogeneous items due to economies of scale and efficiency in manufacturing.
In the cereal industry, this method allows for lower cost per unit and maintenance of efficiency, which job-order costing does not provide due to its focus on variety and customized products.
Step-by-step explanation:
Process costing is more conducive than job-order costing under circumstances where a business produces large numbers of homogeneous items.
This is often the case in industries like the cereal products business. Process costing allows for the calculation of an average production cost for all units produced, which is practical when individual units are indistinguishable from one another.
In environments where economies of scale can be realized, process costing becomes even more beneficial. Economies of scale refer to the concept where, as the level of production increases, the average cost of producing each individual unit declines.
Therefore, in a business producing homogeneous items at a large scale, embracing process costing can capitalize on these savings and lead to increased efficiency and competitive pricing.
Specialization and economies of scale allow businesses like a cereal manufacturer to produce a high volume of product, keep unit costs low, and maintain efficiency in production.
This is opposed to job-order costing, which is better suited for customized, individualized products where variety is a significant factor. Both costing methods have their place in manufacturing, depending on the nature of the product and production process.