In some industries, companies bill jobs on a “cost plus profit” basis. This creates an incentive for companies to pad their bills–overstate the costs incurred on particular jobs so as to inflate their bills. Suppliers to the government have often been accused of overbilling by misstating their cost accounting records.
What feature of these businesses creates an incentive to misstate cost accounting data on particular jobs? What can customers do to protect themselves from overbilling?
Assume you own a business that makes two complementary products for which you allocated manufacturing overhead proportionally. A competitor is trying to undercut your price for one of the products. How might ABC costing help you better compete with this pending threat?
Author’s Corner Video “Costing Errors”
Author’s Corner Video “Alternative Costing Methods”
While the text presents job and processing costing systems as virtual “polar extremes,” there are many situations where it may be best for a company to use a hybrid system that combines attributes of both systems. Describe such a situation and discuss how the hybrid system may be better than either pure job or pure process systems.