Running head: COSTING METHODS

Costing Methods Sally Petersen ACC 561 July 30, 2012 Jason See

COSTING METHODS

Costing Methods Created in 1990 by Franco Harris, Super Bakery, Inc. is a nationwide supplier of mineral, vitamin, and protein enriched doughnuts and other baked goods to the institutional food market, and primarily school system (Davis and Darling, 1996). It is unique in that, according to Davis and Darling (1996) it is a virtual corporation in which only the core, strategic functions of the business are performed inside the company. Super Bakery has used four main strategies to grow the business 20% to 30% consistently over the past eight years. They are conservative staffing, specific customer targeting, packaging and distribution, and using governmentsupported supplies. Finally, Super Bakery reduced capital investment and overhead expense; by contracting out major functions of the business (Davis and Darling, 1996, Super Bakerys Strategies, p. 20). These include the departments of selling, manufacturing, warehousing and shipping. Adopting the ABC System Management transferred to the ABC system so that they could have a more control over the tracking of costs over each individual order. Super Bakery, Inc. deals with companies across multiple regions and so the orders involve different base costs. Switching to an ABC system allows the company to see the individual costs of products for each supplier and distributor by showing the unit cost instead of just the total cost of the product. The ABC system will also allow Super Bakery, Inc. to track profitability of each customers account (Davis and Darling, 1996). I think that switching to the ABC system was the right decision for management to make. Implementing it allows the true costs of each sale to come through and the real profit margins will begin to show. From there, future decisions about which products to continue with will be

COSTING METHODS

much easier to make. Customer profitability will also be able to be tracked easier. The ABC system includes increased number of cost pools used to assign overhead, enhanced control over overhead costs, and therefore management can make better decisions (Kimmel, Weygandt, & Kieso, 2009). Cost Systems There are two other order cost systems that management looked at. The first was the job order cost system. This system would not be suitable for Super Bakery, Inc. as it is set up to work with direct labor costs. Under a job order cost system, the company assigns costs to each job or to each batch of goods (Kimmel, Weygandt, & Kieso, 2009, p. 772). Super Bakery, Inc. is almost virtual due to all of the outsourcing that it practices. The second is process order costing. This system deals with machine work hours to calculate the costs and the overhead values. Process costing accumulates product-related costs for a period of time (such as a week or a month); instead of assigning costs to specific products or job orders (Kimmel, Weygandt, & Kieso, 2009, p. 773). Again, this system does not work well with Super Bakery, Inc. setup. They of course could be used but would not give accurate data to work with for pricing and customer analysis. Conclusion Super Bakery will use ABC costing to continue to grow and prosper in the upcoming years. Management will use it to identify costs that are out of range and need analyzed as well as making sure that prices are set to current and accurate costing of all activities that go into the making of their product.

COSTING METHODS

References Davis,T., & Darling, B. (1996, October). ABC in a Virtual Corporation. Management Accounting, pp. 18-26. Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009). Accounting: Tools for business decision making (3rd ed.). Hoboken, NJ: John Wiley & Sons