Acc/561costing Methods for Super Bakery

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Costing methods for Super Bakery

Super Bakery is a virtual corporation created in 1990 by Franco Harris, developing a network of supply for “donuts and other baked goods aimed for the institutional food market” (Kimmel, et al, 2009, pg 867). According to Kimmel, et al (2009), “only the cores, strategic functions of the business are performed inside the company. The remaining activities, selling, manufacturing, warehousing and shipping are outsourced to a network of external companies,” (p.865).

Management Strategies

The current management strategy was job order based upon the outsourcing of the jobs. While the company was realizing a 20% annual growth rate, management still found that the current system was allowing a wide variation in cost control. (Kimmel, et al, 2009, pg 865).When it was noticed that “orders with high margins were subsidizing orders with low margins” (Kimmel, et al, 2009, pg 867), in the current strategy, the need for a new strategy became apparent. The move to an activity based costing system (ABC) that will show the costs produced by each activity performed rather than the job appears to be the correct choice.

Managements Installation of ABC

Super Bakery Inc will benefit from the implementation of the ABC system because the costs are tracked by each account in conjunction with performance of outsourced activities. The ABC system uses multiple bases or pools to assign costs to each activity in the production and shipping process. “In activity-based costing, and activity is any event, action, transaction, or work sequence that incurs cost when producing a product or providing a service” (Kimmel, et al, 2009, pg 867). ABC provides detailed information about how cost is consumed in the work flow. The system shows the company where the volume differs in region and manufacturing complexity. This tells management where they need cost improvements and where prices need to be raised in addition to future product or location planning. With the...