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Costing Methods Paper

Nichole Holden


April 7, 2012



This assignment will focus on understanding the costing methods used by an organization and how these methods assist an organization in tracking its profitability. I will also touch base on some specific cost methods such as Activity based system, Process order system, and Job order system. I will also give reasons for why these systems will or will not work for Super Bakery Inc.

Strategies used by the Management of Super Bakery Inc.

The main approach used by Super Bakery Inc. looks as if to be improving the company’s worth by making small investments in the company’s staff, fixed assets and working capital. Super Bakery Inc. continued to use only the main strategic functions are being used and the other functions such as shipping, selling, and manufacturing are being contracted out. At first the Super Bakery Inc. used traditional costing system where costs were being extended throughout the whole customer base. On the other hand with the installation of the ABC system, this strategy was to track the company’s profitability of each of the customer accounts individually.

Decision to install the ABC System

Super Bakery Inc. decision to implement the ABC system was because this system would be able to allocate costs to each of the orders. The ABC system allows Super Bakery Inc. to see the profitability of each customer’s account individually and know the cost and profit margins of each one. This also allowed the company some control over the costs of the outsourced activities which are a challenge for the management. I do agree with the strategy of implementing the ABC system into Super Bakery Inc. This would allow the company to in force management decisions that would also give Super Bakery Inc. a precise cost data. The information from the cost data would help them to decide if they should manufacture a part or a component or buy it...