Question

In: Accounting

Can you give some specific examples of organizations that might use each costing method (job, process...

Can you give some specific examples of organizations that might use each costing method (job, process and activity based)? Would there ever be a time when an organization might use more than one?

Solutions

Expert Solution

Examples of Organization using Job Costing:

  • Aircraft manufacturing companies
  • Ship building orders
  • Furniture making based on customer specifications
  • Food industry catering to specific order for example air travel meals
  • Clothing factories
  • Service firms like - Accounting, Auditing, Taxation, etc

Examples of organizations using Process Costing

  • Paints industry
  • Chemicals factories
  • Petroleum industry
  • Oil and gas industry
  • Sugar industry

Activity Based Costing is a better way of allocating overheads to products and services compared to traditional method which uses Direct labor rate and Machine hour rate. it is a modern technique of allocating overheads to get accurate product and service costing for reliable decision. It can be deployed by any organisation depending on Cost Benefit analysis

Some organisation which usually do Activity Based Costing are:

  • Accounting and tax firms
  • Educational institutions
  • Hospitals
  • Manufacturing firms like Clothing, Detergents, etc

In situations where company produces large quantity of identical products and then customizes according to customer needs it is possible to use both elements of costing method- Job costing and process costing which is Hybrid costing. For example in Furniture making company products manufactured using same raw material and labor up to a point and then customized according to customer needs. Automobile industry also manufacture vehicles using same raw material and labor up to a point and then do different variants .


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