Super Bakery, Inc. & Costing Methods
July 7, 2014
Super Bakery, Inc. & Costing Methods
A sign of the future is the way corporations are forming to reduce costs and maximize profits. One way corporations are doing this is by forming virtual corporations. A virtual corporation is when the majority of the support activities are outsourced and only the core functions are done inside the main company. (Davis & Darling, 1996) Relationships are formed with outside companies whose business it is to perform the different functions that are required. Super Bakery, Inc. is one such virtual corporation. Super Bakery, Inc. supplies baked goods to the institutional food market. (Davis & Darling, 1996) Supper Bakery, Inc. outsourced the selling, manufacturing, shipping, and warehousing of their products. The staff handles the financials or accounting, marketing, and research & development. Strategies
After four years of disappointing sales, Super Bakery, Inc. came up with strategies to put their business back on top or at least to making a profit. They went after the school system food market because they determined that this would benefit from their low calorie, good tasting food.
Next they decided to refrigerate, vacuum seal and distribute their product nationally which helped to solidify their national presence. (Davis & Darling, 1996) They began to support their customers by providing them with ways to obtain lower prices for certain commodities. Also they began providing pre-packaged meals to schools. Lastly the implementation of making Super Bakery, Inc. into a virtual corporation has helped them to reduce overhead expenses and capital investments. Becoming ABC
Super Bakery, Inc. management needed to find a way to report on performance of both nonfinancial activities such as customer service and satisfaction levels and financial activities. Super Bakery, Inc. serves several different customers there by acquiring a large variation in the costs it takes to serve them. They had to decide if they wanted to spread the cost of producing and servicing the product equally among their entire customer base. This is in line with a standard costing system. Or to assign exactly what it would cost to produce the product to each individual customer, the activity base costing system (ABC).
They decided to go with the activity base costing system because it gave them the ability to keep track of each customer’s account and see how profitable they were. The activity base costing system will also let them keep track of their outside contractors to see how well they are performing. Processing cost or Job order costing
Processing cost system is used in a company that mass produces products that are similar. (Kimmel, Weygandt, & Kieso, 2011) The products follow a manufacturing process that ends with a finished product. This type of costing system would not work in Super Bakery, Inc. because they outsource companies. These outside companies may implement a process costing system with their own companies.
A job order costing system would also not work in the Super Bakery, Inc. company. A job order cost system assigns a cost to each job as it is done. (Kimmel, Weygandt, & Kieso, 2011) Each job has its own characteristic which is not necessarily the case with the outsourced companies that Super Bakery, Inc. uses. They have developed a relationship with each company and that company is assigned a part of the process to get the finish product out. Also, both the job order costing system and the process cost system involve direct labor cost which a virtual corporation, like Super Bakery, Inc. does not necessarily have. Super Bakery, Inc. was originally using a traditional process costing system their decision to begin using an activity base costing system will help supplement their original costing system and help them identify more accurately the cost of producing the product there by letting them...
References: Davis, T. R., & Darling, B. L. (1996). ABC in a virtual corporation. Management Accounting, pg 18.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting: Tools For Business Decision Making 4E. Hoboken: John Wiley & Sons, Inc.
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