Question

We, as consumers, have become quite spoiled by the food service industry catering to our desire to get our meals exactly the way we want them. Many counter service or "fast casual" restaurant chains like Subway, Chipotle, Five Guys, Yogurtland, Shake Shack, and Zoe's Kitchen are making our meals to order (or allowing us to do so in the case of some of the yogurt restaurants) while we wait.

In this type of business model, food is generally less processed and sometimes locally sourced. Because the food is fresher, fast casuals charge more for meals—averaging $7-15 per meal. What these restaurants do save money on is labor—they have no wait staff or hosts/hostesses. As a result, from an accounting perspective, the costs incurred for the raw materials inventory could likely be among the higher expenditures the restaurant would have every month.

Using what you know about how these types of restaurants operate (menu offerings and add-ons, service model, etc.) and what you have learned about job-order costing and process order costing, please identify which costing system you would implement if you owned one of these types of "made to order" restaurants. What would be some of the considerations you would use to make your decision? Include at least one challenge you would need to overcome from implementing the system you chose.

Answer 1

JOB ORDER SYSTEM is generally used by companies that manufacture a number of different products. It is a widely used costing system in manufacturing as well as service industries.

Manufacturing companies using job order costing system usually receive orders for customized products and services. These customized orders are known as jobs or batches. One advantage of job order costing is that it allows managers to calculate the profit earned on individual jobs, helping them to better ascertain whether specific jobs are desirable to pursue in the future. This is best for businesses that do highly custom work. Companies that use job costing work on many different jobs with different production requirements during each period

PROCESS COSTING

This costing accumulates costs incurred to produce a product according to the processes or departments a product goes through on its way to completion. Companies that use process costing produce a single product, either on a continuous basis or for long periods. All the products that the company produces under process costing are the same.

MADE TO ORDER

Made to Order (MTO) is a production and inventory strategy in which companies manufacture products or provide services according to each customer's specifications rather than according to a homogenous specification.