Accounting_Apple_Analysis

Cost Methods of Super Bakery, Inc. University of Phoenix Accounting ACC /561 Professor Karen Lascelle April 30, 2012 Abstract Super Bakery, Inc. is a supplier of mineral, vitamin and protein-enriched donuts and other baked foods, primarily for schools throughout the country. The company was founded in 1990 by Franco Harris, a former running back for the Pittsburgh Steelers. Super Bakery was set up as a virtual corporation, only the main functions of the business are performed internally. Manufacturing, storing, selling and shipping functions are outsourced to other companies in an effort to maximize profits with a minimum investment (John Wiley & Sons, 2009). The following paper will address the management strategies used by Super Bakery, Inc. in attempting to control the costs of the outsourced company’s activities and determine the best suited accounting cost system. Management Strategies As a service provider, Super Bakery has faced challenges in attempting to control the costs of the outsourced company’s activities. They service clients all over the United States and noticed that the costs associated with different areas varied to a large degree. To get an accurate accounting of each customer’s order the decision was made to change from the traditional accounting costing system of spreading costs over the entire customer base equally to an activity-based costing (ABC) which allocates costs to multiple cost pools and then assigns the costs to products and services by means of cost drivers(John Wiley & Sons, 2009). To achieve improved management decisions more accurate cost estimates can be made using the ABC. I am in concurrence with Super Bakery’s management decision to install an ABC accounting system. The traditional accounting approach disperses costs equally to each customer and does not take into account variations due to location or other cost drivers. Using the ABC accounting method management can determine the profitability of each product by customer, location, supplier or any other cost driver variables. ABC leads to better management decisions, accurate product costing and selling prices. Job Order vs Process order cost systems Calculating the costs associated with the production of goods and services aid in management decisions and can determine the success or failure of a company. Costing is an accounting technique used to determine the exact expenses for material, labor and overhead incurred in operations (Ingram, 2012). The two types of cost systems are job order and process order cost systems. Job order costing is best used on special orders, customized products, or products produced in batches. Process order costing is used when large volumes of identical items are produced. Super Bakery produces baked goods to individual clients. Each client has a unique baked goods order. Job order costing is best suited to work for Super Baker in tracking the profit on individual jobs to determine if specific client relationships should be continued in the future. Process order costing would not be a good fit as the company’s products are not homogeneous. Conclusion A business can be reporting strong financial statements and making yearly growth but an analysis of the accounting methods being used can prove that a different method can give more accurate and relevant information, as in the case of Super Bakery, Inc. Complacency with success can often lead to future failures. References 1. Ingram, D. (2012). Advantages & Disadvantages of Job Order Costing & Process Costing. Retrieved from http://smallbusiness.chron.com/advantages-disadvantages-job-order-costing-process-costing-3082.html 2. John Wiley & Sons. (2009). Activity-Based Chap 17. Retrieved from John Wiley & Sons, ACC 521 website.