Question

Boeing builds airplanes – lots of them, so that might indicate that they use process costing. However they do not build a plane until they have an order which would indicate that they use job order costing. Which method do you think that Boeing uses? Elaborate.

Answer 1

I believe that Boeing uses job costing method for airplanes building. The reason being the need to customize airplanes according to the customers needs. For example the distance between seats, the aisle dimensions etc are decided by each customer. There are Boeings with only economy seats, then there are Boeings with different classes of seats. So the the company will have to manufacture according to each customers need, so job costing is the most suited method due to this customization. Under job costing, manufacture of each airplane is treated as a different job and all costs associated with this airplane only is tracked and absorbed. Thus Boeing will have exact idea of how much it costed them to make the airplane and can bid the price effeciently. Had Boeing used process costing, there will be a standard cost for all airplanes manufactured and it will be very difficult to understand actual cost incurred on each airplane, making it very difficult to fix a price.