Dyana Julian, president of Julian Juices, Inc, has approached you with the following questions: "Why must we use the process costing method to compute product unit costs for three lines of fruit juices? Why can't we consider using a job order costing approach?" Prepare a written response to Ms. Julian
The process costing method is suitable for businesses that produce liquid products and have a continuous production process. The key is a continuous process and the fact that it is difficult to see when one order has been completed and another started. A job order costing method, on the other hand, is suitable when a company produces special-order or one-of-a-kind products. In this situation, it is necessary to collect costs for each order.
A juice beverage business making only three lines of beverages lends itself to the process costing method. If the company switches strategies and begins to produce special-order juices in small quantities or for specific customers, then a job order costing method may be appropriate.
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