Running head: COSTING SYSTEMS

Costing Systems and practical applications

Name
Institutional Affiliation

COSTING SYSTEMS
2

Costing Systems and real life applications

Job costing method should particularly be applied when a job is undertaken to fit the
customers specifications and usually used by business which receives order for work peculiar
to needs of individual customers. Its usually applied in repair industries, automobiles,
consultancy firms, accounting firms and printing press. A good example of a company that uses
this method is Delloitte. The company utilizes this system because its clientele requires different
and specific services hence cost must be based on the specifications. For instance the cost of a
consultant requiring services in audit cannot be the same requiring advice in financial risk hence
cost is distributed accordingly. In addition, the organization is able to measure the profitability
of each service offered individually as well as determine the performance of each service
provider.
Process costing should be applied in businesses where there are standard operations with
production of homogenous and identical units. Products are produced in same manner and the
output is the final product of a series of operations. This system bests suits manufacturing and
processing industries. A good example of a company using this system is Pepsi. It uses the
system since its best suited to the processing of the carbonated drinks as well enable easy
facilitation of inventory. The company can also exercise efficient control over the production
process.
Activity based costing assigns cost based on the activities required to deliver a service
and the resources these activities absorb. This system should be applied to business that produce
products or service whereby each activity has a different cost to the other. Companies using this

COSTING SYSTEMS
2

method include construction and healthcare providers. A good example is the united parcel
service (UPS) The UPS uses ABC to monitor financial performance at all levels and reduce cost.
Since it deals with shipping and delivery of different parcels, each activity has a cost associated
to it different from others. The company applies this cost system since it brings more
transparency in calculation of cost and hides potential inefficiencies of the service provider.

COSTING SYSTEMS
2

References
Dale, B. G &Wan, G.M. (2002) .Setting up a Quality Costing System: An evaluation of the key
Issues. Business Process Management Journal, 8(2), 104 116.
http://dx.doi.org/10.1108/14637150210425081
Gunasekaran, A. Williams, H.J & McGaughey, R.E. (2005). Performance Measurements and
Costing System in New Enterprise. Technovation , 25(5), 523-533 .
http://dx.doi.org/10.1016/j.technovation.2003.09.010
Dan,S.(1995) The Benefits of Activity-based Cost Management to the Manufacturing
Industrry, Journal of Management Accounting Research , 7 , 167
http://search.proquest.com/openview/db2ab97314018afefbefb0a5fe3dbaef/1?
origsite=gscholar&cbl=31820

pq-