Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 32

Job Costing in the Airline Industry

Manufacturers of large equipment such as aircraft and ships and companies involved in road construction have jobs that may require two or more years for completion. For example, Boeing Corporation might have an order for 50 aircraft for a particular airline, and the order will extend over a three-to five-year period. Aircraft are delivered as completed, but not in a batch of 50 at one time. In the typical fashion, the overhead application rate must be calculated and applied in such a way that each aircraft that is delivered has the proper amount of overhead for that aircraft.

Required What unique difficulties do you see in the calculation and application of overhead in industries such as aircraft manufacturing or shipbuilding? How do you think these firms should respond to these difficulties in determining overhead rates and applying overhead costs?

Step 1 of 3

Costing is process of accumulating different cost under head of direct labor, direct material and factory overhead for the goods or service produced. Job costing system is a system where costs are accumulated and then are allocated to certain project, job, customer, etc.