Costing Methods: Super Bakery, Inc.
March 18, 2013
Super Bakery, Inc., a virtual corporation is a supplier of mineral-, vitamin-, and protein-enriched doughnuts and other baked goods to institutional food distribution centers nationwide (Kimmel, Weygandt, & Kieso, 2009). The company has grown at an average rate of 20% annually since 1990 but persistent challenges of identifying opportunities for cost efficiency in using traditional costing methods requires new strategy. Desire for new “system that would more accurately assign the costs of each order” (Kimmel, Weygandt, & Kieso, 2009, pg. 865), Super Bakery is exploring ...view middle of the document...
The activity-based costing (ABC) method identifies multiple cost drivers for indirect business costs, especially in manufacturing. ABC method “separates out each predetermined cost driver and multiplies it by the product's unit volume” (Akers, 2013, para. 3). The activity-based cost method is particularly well suited for Super Bakery, Inc. because the system identifies which products is using more or less of company’s resources. The implementation of ABC method will show “the costs and profit margins on each sale” (Kimmel, Weygandt, & Kieso, 2009, pg. 865) significantly and help determine the course of action needed.
Job Order Cost System Vs. Process Order Cost System
In combination with activity-based costing method, Super Bakery will benefit from process costing system that tracks and evaluates inventory based on the price of the product’s direct and indirect costs (Process Cost System, 2013). The system is mainly used in production of homogeneous products such as “beverages, food, nails and screws… items are processed through individual processes where costs are applied to each batch of produced goods” (Vitez, 2013, para. 3). As a virtual corporation with business activities of manufacturing, warehousing, selling, and shipping functions being outsourced to external companies, Super Bakery can create simple cost allocations for each function. Another benefit of process order cost system is its flexible production process which company can “simply add or remove a process as necessary. This also allows companies to lower their production cost for each...