Question

Choose ONE of the costing systems studied in this unit from the list below, and answer the questions that follow: • Job Costing • Process Costing • Operation Costing (Hybrid Costing) • Activity-based Costing (ABC) Questions: 1. Briefly discuss the features of your chosen costing system. (3 marks) 2. Identify 2 specific Australian companies that your chosen costing system is suitable for, and explain why. (3 marks) 3. Discuss two potential uses of the cost information for decision-making, to the managers in each of the 2 organisations selected in Q2 above. (3 marks)

Answer 1

1: I have selected ‘job costing’. The feature of job costing is that it records the cost of a manufacturing job and not a process. In this system or method cost is ascertained separately for each job and this system is most useful for companies in which every work order that they receive and work on differs from one customer to the other customer.

2: Two Australian companies for whom job costing is suitable are – ASC Shipbuilding and Allens. While ASC is a shipbuilding company Allens is a law firm. For both these companies job costing is most suitable because of the fact that the work done by them differs from one customer to another. ASC Shipbuilding makes ships as per the specifications of the customers and each order is different in terms of size of the ship, cargo volume etc. Thus having a job costing system in place will help ASC to determine the actual costs of building a ship. For Allens it is a law firm and hence is in the white collar business. Here it can use job costing to manage individual clients and better ascertain cost of providing legal services to a client.

3: Two potential uses of job costing for decision making for managers of ASC are:

· Making decisions with regards to control of raw materials, labor hours etc.

· Profitability of each order can be determined and hence managers can decide on which types of ships to specialize in or concentrate on to maximize profitability and build competitive advantage.

Two potential uses of job costing for decision making for managers of Allens are:

· Decisions with regards to individual clients can be made in a better manner and in a manner that will help the company to optimize its service offerings. Cost profit analysis of each client can be done.

· Managers can do a trend analysis for each clients and then determine its long term objectives based on this analysis.