Costing Method

Costing Methods

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ACC/561

April 29, 2013

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Costing Methods

Super Bakery, Inc. is a virtual corporation initially using the traditional costing method. This method impacts the company’s pricing and the accuracy of costs per order. The company is a supplier of doughnuts and baked goods enhanced with vitamins, proteins, and minerals. The corporation’s goal is to maximize the company’s value while implementing minimum investments in areas such as their working capital and fixed assets. However, the virtual company must overcome its challenges of controlling the costs of its outsourced activities. Switching costing methods from the traditional to the activity-based costing method will bring benefits to Super Bakery, Inc. which can lead to improved management decisions and heightened control over the company’s performance of outsourced activities and overhead costs.

Strategies of Super Bakery, Inc.

Since conception, Super Bakery Inc, has used the traditional method of spreading cost over their entire customer based. Simply put every order, no matter the customer, cost the same. In the beginning this method seemed efficient since Super Bakery Inc outsourced their selling, manufacturing, warehousing, and shipping departments. Super Bakery simply added all the costs together from each department and evening spread it across all orders. The problem that arose is that Super Bakery suspected a wide variation in costs since orders were shipped all over the country. After researching a new cost method it was apparent that orders with high profit margins were subsidizing order with low profit margins (Kimmel).

Switching to Activity Based Costing

Super Bakery Inc. is a virtual company and the business relies upon the operations of the companies it outsources. The outsourced companies provide manufacturing, sales, warehousing, and shipping services for Super Bakery Inc. (Kimmel,...