Refer to the Hotbox Ltd production process details in problem 9.10.

Required

Explain in detail, using the facts from Problem 9.10, why it is most appropriate for Hotbox Ltd to use a process costing system rather than a job order costing system. Your answer should be no less than 250 words and should relate to the steps evident in the construction of cardboard pizza boxes.

Data from problem 9.10:

Hotbox Ltd produces pizza boxes using two processes — cutting and packaging. The production budget for the year ending 30 June 2016 estimated raw materials use of $400000, factory overhead of $270000, direct labour costs of $190000 and 168750 machine hours. (Ignore GST.)

During April 2016, the following transactions were recorded:

 1.  Raw materials transferred to cutting, $21600.

      Raw materials transferred to packaging, $28000.

 2.  Direct labour costs incurred by cutting, $15800.

      Direct labour costs incurred by packaging, $20200.

 3.  Machine hours used by cutting, 13800 hours.

      Machine hours used by packaging, 17600 hours.

 4.  Other production costs for April were:

          Factory supplies   $25400

          Depreciation           16500

          Repairs                     6200

          Insurance                 1700

 5.  Product with an assigned cost of $61400 was transferred from cutting to packaging.

 6.  Overhead was applied in each department based on machine hours used. (A predetermined rate based on estimated overheads and total machine hours over both departments is to be calculated.)

 7.  Raw material purchases were $56000.

 8.  Goods with an assigned cost of $136000 were transferred from packaging to finished goods.

 9.  Finished goods with an assigned cost of $140000 were sold on credit for $162000.

 10. Beginning inventory as at 1 April comprised the following amounts:

          Raw materials                            $17500

          Work in process — cutting           18400

          Work in process — packaging     21800

          Finished goods                            14000