Act 500 Managerial Accounting

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Discussion Question
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According to Warren & Tayler (2018), process cost systems are best suited for industries
that produce homogeneous products in a continuous process. These systems are particularly
effective when there is a high level of standardization in the production process, and the final
product is relatively uniform. Let’s discuss how a process cost system would be tracked and
recorded for one business type: the “Building Contractor.”
Building Contractor:
Building contractors are ideally suited for process cost systems, especially in construction
projects where the production process involves multiple standardized phases. The construction
industry often deals with projects of varying sizes and complexities, making it essential to track
and manage costs effectively.
Tracking and Recording in a Building Contractor Business:
Within the realm of building contractor businesses, the construction process is commonly
segmented into discrete stages, encompassing site preparation, foundation work, framing,
roofing, siding, and interior finishing. Each of the aforementioned steps encompasses distinct
cost components, namely labor, supplies, equipment, permits, and subcontractor fees.
Here’s how the process cost system is tracked and recorded for a building contractor:

Cost Allocation: The first step is to allocate costs to each phase. Direct costs, such as
labor and materials directly associated with a specific phase, are allocated
straightforw …
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