Question

As the new accountant at The Mason Company, you have been asked to set up a costing system for their new company. They build custom boats, each one made to order. The best system for them would be:

a) Job order costing
b) Process costing
c) Either costing system would work
d) None of the above

Answer 1

The Mason Company should use job order costing because it is suitable for custom, made-to-order production, enabling accurate cost allocation for individual jobs.

Step-by-step explanation:

For The Mason Company, which builds custom boats made to order, the best costing system to set up would be job order costing. This system is ideal for businesses that produce unique, custom products for each customer. Unlike process costing, which is used for mass production of similar items, job order costing allows for the allocation of materials, labor, and overhead costs to each individual job, providing a clearer picture of the costs associated with each custom project. For example, when The Mason Company receives an order to build a custom boat, they will create a separate job for that specific boat and track all the costs associated with its production, such as materials, labor, and overhead. This system is suitable for companies that produce customized products or provide services that are unique to each customer's requirements, like The Mason Company's custom boats.