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Costing System Analysis

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Costing System Analysis

It can be easily assumed that from the unique and costly nature of producing airplanes Boeing employs a job-costing system, however that is not the case. Long gone are the days when Boeing’s “primary business was producing military aircraft” (Bowlby 1994) as they now have transitioned to focusing on mass producing numerous parts and assemblies for aircrafts across the globe. In an article published on November 1, 1994 titled, “How Boeing tracks costs, A to Z.”, Robert J. Bowlby, the cost management manager at Boeing in Seattle at the time, explains how Boeing transitioned from a traditional job-costing system to a modified process costing system to accommodate this change in product focus. Bowlby explains the transition was catalyzed when two of Boeing’s departments, engineering and operations, informed the finance department that they weren’t getting the appropriate cost information to effectively manage the design and production of the airplanes. Boeing’s traditional job-costing model was ideal for external financial and tax reporting purposes at an airplane model level, but at an operating level, engineering and operations were basing their budgets on very few cost elements. This means that engineering and operations weren’t provided with adequate information to effectively manage costs related to their various processes and operations. The cost information given to individual managers did not coincide with their duties or the areas they were responsible for. As a consequence, managers were unable to utilize the cost information to perform “reliable economic-design trade studies or to make economically sound investment decisions,” instead had to “generate such information almost exclusively by special analysis” (Bowlby 1994).
To begin the restructuring of Boeing’s cost accounting system, the finance, operation and engineering…...

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