Super_Bakery

Costing Methods Paper Costing methods can vary by organization. Traditional costing methods may suit one organization while activity-based costing methods suit another. Costing method is just one of the many strategies an organization must consider on its quest to becoming successful. Super Bakery Inc. was not exempt from making this decision. This paper will identify the chosen strategies of Super Bakery Inc. and offer a suggestion on whether or not a job order cost system or process order cost system best suits this organization. Super Bakery Inc. Strategies As a new company in the 1980s, founder Franco Harris employed individuals with extensive experience in the institutional food business (Davis & Darling, 1996). This strategy proved beneficial in the company’s growth and profitability. Another strategy used by Super Bakery Inc. was market segmentation. Super Bakery Inc. targeted school systems which were in a bind primarily due to stricter health requirements by the government (Davis & Darling, 1996). To earn the business of the segmented market, Super Bakery Inc. developed doughnuts low in calories, enriched with vitamins, and tasty while meeting guidelines of the USDA. This strategy was instrumental in Super Bakery sales growing while doughnuts high in fat were declining in sales. Another of Super Bakery’s strategies was national distribution of its doughnuts. Super Bakery was able to accomplish this by refrigeration and vacuum sealing. By doing this, Super Bakery was no longer limited to one specific geographic area. A third strategy was just-in-time (JIT) delivery. Super Bakery used government-supported commodities such as flour, butter, and fruit, collaborated with non-competing suppliers (Davis & Darling, 1996). The final strategy in use by Super Bakery is electing to operate as a virtual corporation. This strategy permits the company to reduce overhead expenses and capital investments by outsourcing major functions of the company (Davis & Darling, 1996). Activity-Based Costing System Activity-based costing (ABC) was the costing method chosen by Super Bakery Inc. This method was chosen primarily because of the company being a virtual corporation and the belief that traditional costing methods would not identify the company’s real cost structure (Kimmel, Weygandt, & Kieso, 2009). ABC is comprised of four steps. These steps include identifying and classifying major activities involved in manufacturing products, identifying cost drivers bearing a strong correlation to costs from the cost pool, computing overhead for each cost driver, and assigning overhead costs for each cost pool to products by use of the overhead rates (Kimmel, Weyngandt, & Kieso, 2009). There are advantages of using ABC. The main advantage is the accuracy in product costing. This accuracy occurs because ABC prompts increase cost pools, enhanced overhead control, and better management decisions (Kimmel, Weyngandt, & Kieso, 2009). Overhead amounts are not changed, but is allocated more accurately based on the cost pools. Super Bakery made a wise decision by implementing this costing method. Since the company is a virtual organization, ABC allows each activity in the production of the doughnuts to be accurately priced. Job or Process Order Cost System Job order and process order costing systems have similarities and differences. When deciding on which to use, management of any company should become familiar with the similarities and differences based on the needs of the company. The similarities include both systems providing the same purposes of assigning material, labor, and overhead costs to products, they both use basic manufacturing accountants, and the flow of costs through manufacturing accounts are the same (Accounting for Management”, 2012). The differences are illustrated in the chart below. |Job Order Costing |Process Order Costing | |Many jobs worked on during each period; each job having various |A single product is produces either continuously or long periods of | |production requirements. |time and all products are identical. | |Costs accumulated by individual jobs. |Costs are accumulated by departments. | |Job cost sheets are key in controlling cost accumulation of jobs. |Department production report is key in reporting accumulation and | | |disposition of costs. | |Unit costs are computed by job on the job cost sheet. |Unit costs are computed by department on the department production | | |report. | “Accounting for Management”, 2012 Based on the summarization of job order and process order costing, Super Bakery Inc. should consider using job order costing. Very few customers of Super Bakery use the same amount of resources and profits on each sale varies (Davis & Darling, 1996). Conclusion There is much to consider when deciding on costing methods. How an organization identifies cost depend significantly on how the company operates. An understanding of the pros and cons of traditional and activity-based costing will enable managers to choose the most feasible format in costing. Additionally, the ability to distinguish between job order and process order costing will set managers on the right path to making sound decisions on costing methods for the organization. References Accounting for management. (2012). Retrieved from http://www.accounting4management.com/similarities_and_differences_between_job_order_and_process_costing.htm Davis, T.R., & Darling, B.L. (1996, Ocotber). ABC in a virtual corporation. Management Accounting, 78(4), 18. ProQuest. Kimmel, P.D., Weygandt, J.J., & Kieso, D.E. (2009). Accounting: Tools for business decision making (3rd ed.). Retrieved from The University of Phoenix eBook Collection database.