The work and materials required to make and serve regular coffee is considerably different than the work involved in making and serving a venti half-caf mocha-vanilla soy frappucino, for instance, and though some long-term regularity would be expected in the number of each drain that is ordered estimating costs based on a time scale for this area of operations would be cumbersome and inaccurate. Using the job order costing method and determining how much the materials and labor cost for each type of drink (or, in the case of coffee, the cost for making a single batch of the drink), and thus more accurate prices can be set that reflect the company's costs and allow it to continue making a profit (and frappucinos). By utilizing both costing methods as appropriate, then, Starbucks can place itself in a more advantageous position regarding cash flow in and out of the business.
Benefits of Both Systems
There are definitely some complicating factors when it comes to using both costing systems, as ultimately all of the operations within a company interact. The coffee beans that are procured and that (if they use the above recommendations) Starbucks tracks with a process costing method are ultimately used to make the beverages in retail stores that the company (again, if following the advice here) tracks using a job order costing method, and thus there will be a need for some mechanism of converting the appropriate portion of costs when necessary. Even with this complication, however, the advantages of using both costing methods for different areas of operation makes this strategy well-warranted and very effective for the company.
Job order costing allows managers and executives to determine how much profit is being made from each job, or in the case of Starbucks from each type of drink it delivers at a certain price (in this scenario, each "job" produces one unit of output, i.e. The...
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