Costing Methods Paper

Costing Methods Paper

David Casey

ACC/561 Accounting

October 31, 2011

William Montgomery

Super Bakery was created in 1990 as a supplier of mineral, vitamin, and protein enriched doughnuts. The management team has utilized the strategy of job order cost method. This method allocates cost to specific job orders and then assigns them to batches of products. Job costing is that preferred method for smaller and medium size companies. Some companies that use this method are medical and legal services, manufacturing, construction, etc…

Super Bakery’s management team implemented the activity based costing (ABC) cost method which failed to make a positive impact for the company. The ABC method provides a costing system that separates the company’s factory overhead cost in each activity such as the bakery machine set up, operating machines, etc… These activity costs are then allocated to each individual products or services.

As previously mentioned the strategy failed to produce the necessary results desired. There were no positive gains and the profit margins were not located through the activities in the company. Every since the company was founded over 20 years ago production has only increased by about 20 %. Management has decided that this percentage needs addressed immediately.

Most of Super Bakery’s main functions are inside operations. Their external operations are basically divided between warehousing, manufacturing and shipping. These are complete by a network of outside companies. These outside costs are hard to manage and control which have became a concern to the company.

Management came to the conclusion that that job order method was not effective for the company. When comparing that profits against the activities of the company this method was just not right for the company’s overall effectiveness. The decision to move to the ABC method became was made apparent by the evaluation of orders with high margins...