KB Homes is a nationwide home builder that develops entire communities of dozens

Question

KB Homes is a nationwide home builder that develops entire communities of dozens and even hundreds of homes, in addition to, building custom homes for individual customers. While a Job Costing system is appropriate for the custom home building, their new controller is planning on using a Process Costing system for the large developments. She argues that because even large developments of 100 homes only offer three or four different floor plans and thus would be more efficient for tracking costs because of the homogeneity. Do you agree or disagree? Why?

Explanation / Answer

The new Controllers' argument for using Process costing for large developments having homogeneous buildings with 3-4 different floor plans is correct. For the buildings/apartments having same floor plan , there is no customization and all the units go through the same processes and consume same resources. For large developments of homogeneous nature , instead of creating Job order for each unit and collecting the costs separately for each unit , process costing for each floor plan as separate product will be much easy and effective for controlling purpose.

This process will also give meaningful data and reveiw and monitoring will be much easy.

Creatiing individual job order will only add to the complexity of tracking costs per job order and monitoring a huge no of job orders at any point of time that can be easily avoided by adopting Process costing.

So the New Controller's argument is agreeable.

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