Manufacturing and Service Firms In general, firms can be divided into manufacturing and service firms. Manufacturing firms make a tangible product. They need to determine product costs for both inventory valuation and the calculation of cost of goods sold. The cost of inventory appears on the , and the cost of goods sold appears on the . (Wholesale or retail firms purchase a product that is already manufactured. The cost of such products, which are tangible, are carried at that cost.) Service firms produce intangible products called services, which have the following characteristics: intangibility, inseparability, heterogeneity, and perishability. (Select the correct term for each definition.) Non-physical and cannot be touched or held Requires the producer and consumer to be in contact Incapable of being stored More liable to variability in production The method used to keep track of costs depends on the relative uniqueness of the product or service. Three methods of accounting for the cost of services or products are: job-order costing, process costing, and operation costing. Job-order costing is used for unique products where the cost of one unit (or batch) is different from the cost of other units or batches. All costs of a job must be kept separate from the costs of other jobs. Process costing is used for homogeneous products where the cost of one unit is the same as another. In process costing all costs for the time period are added together and then divided by the number of units produced to determine the unit cost. Operation costing is a hybrid method in which the materials cost may differ from batch to batch but conversion cost is the same. Choose the correct job-order costing firms