Question

Examine individually if these companies: 1.bakery,2. construction company,3. hospital, 4. Accounting firm, could use process costing , why or why not. Could they have a hybrid method of costing? Managerial Accounting

Answer 1

1. Bakery : Process costing system is commonly used where products are manufactured under mass production methods or by continuous processing. Bakery uses process costing system as the items of bakery are produced in bulk.

2. Construction company : A job costing system records revenues and costs for each job because each job results in a unique product and each job has a different material and labour requirement. A construction company uses job costing as each job is unique from the other with respect to revenues, costs, material and labour requirements.

3. Hospital : Operating costing is the method used to ascertain cost of providing a service. Hospitals use operating costing system and cost unit being per patient day.

4. Accounting firm : Accounting firms use operating costing system for providing services.

Hybrid costing system is useful when a production facility handles groups of products in batches and charged the cost of materials to those batches while accumulating labour and overhead costs at departmental or work center level and allocation of those costs at individual unit level.