ACC202AssignmentsWeek 1 - Discussion 1

COSTING SYSTEMS-A CASE STUDY OF BOEING.

For organizations on the scale of Boeing and with the complexity of structure and operations that they face in their environments, then it is paramount that efficiency be emphasized on by the organization to remain operational and profitable. Costing decisions are critical for any organization since overall costs determine margins. In order to improve overall efficacy of the organization, Boeing has had to change from a job-costing approach to a process-costing approach. Job costing was a model of costing which involves assuming that the total cost incurred for production of a unit product-a job, is the final cost of the product. Under job costing, only costs that were attributable to the final product to be sold were traced and transferred to the product. Other costs were assumed to be overheads. On the other hand, process costing involves transferring all component costs incurred for production of uniform products-processes, to the final cost for all items produced. Process costing averages costs over large numbers of nearly identical products. These two types of costing systems are best considered as opposite ends of a continuum; in between, one type of system can blur into the other to some degree (Horngren,2018)

In Boeing, it was important to embrace process costing since it offered benefits such as flexibility and responsiveness to changes within the organization and in the organization’s business environment. Moreover, more data was availed to those in management for use in planning and decision-making. Similarly, factors that had been previously generally assumed by management due to lack of information and analysis could be considered and controlled by managers in order to influence the level of operations of an organization. Managers were able to implement greater cost control within their departments while still maintaining output. This is because, by making use of process costing, many cost elements become identifiable and attributable to a particular process and eventually to the product as opposed to general classification as overhead cost.

By running a process-costing approach, Boeing is able to determine the optimal level of operations under varying corporate and business environments. This ensures that the highest possible profits at a level of operation, lowest possible cost and reduction in hidden costs. This has allowed Boeing to continuously achieve greater planning and operations with minimal wasted resources and finances. Internally within the organization, process costing has allowed business units to gain autonomy in decision-making. These individual business units can now control costs within, become more competitive and increase capacity of the business unit at a level of operation. Eventually, the benefits accruing at the lower levels consolidate into massive organization change.

Atkinson, Anthony A. Matsumura, Ella Mae. Young, S. Mark . MANAGEMENT ACCOUNTING: Information for Decision -Making and Strategy Execution, PEARSON EDUCATION Limited, 2016.

Horngren, Charles T., et al. Cost Accounting: a Managerial Emphasis, Pearson Australia, 2018, pp. 98–102, 606-609.

“Managerial Accounting.” 3.1 Process Costing Vs. Job Order Costing | Managerial Accounting, https://courses.lumenlearning.com/suny-managacct/chapter/chapter-1/.