Cost Method Paper

Costing Method Paper

Eustace Langley

ACC/561

09-26-2011

University of Phoenix

Costing Method Paper

Introduction

In recent years, manufacturers and service providers have experienced tremendous changes and the uses of advance technologies are creating easy access to business environments and situations that were merely impossible. The dot-com era spurs a new way in which businesses run their daily operations. One of these companies is Super Bakery, Inc. a virtual corporation created in 1990, they are a nationwide supplier of mineral, vitamin, and protein enriched doughnuts and other baked goods to the institutional food market, primarily school systems (Kimmel, Weygandt, & Kieso 2009). This paper will examine strategies the company uses to run its operations; the paper will also explain reasons why it is a necessity to install an ABC system and what cost system will work for Super Bakery.

Strategies implemented

Controlling the cost of outsourced activities was a big obstacle for the company and the traditional costing methods they applied was spreading costs over the entire customer base. Job costing is a product costing system where costs are accumulated by specific job orders and assigned to batches of products. “The objective is to compute the cost per job at each point in manufacturing product or providing a service; the company can identify the job and its associated costs” (Kimmel, Weygandt, & Kieso 2009). Job costing is preferable to small and medium-sized companies, such as professional services (e.g. medical, legal), advertising agencies, construction, shipbuilding, custom equipment/furniture manufacturing.

Installing an ABC system

Installing the ABC was the best decision the company made, because with the ABC system they were able to allocate overhead to multiple activity cost pools, and then assigns the activity cost pools to products and services by means of cost drivers. Super Bakery’s management decided to implement an ABC system,...