Running head: COSTING METHODS PAPER

Rita A. Davis ACC/561 October 13.2011 Mark Tischler

COSTING METHODS PAPER Costing Methods Paper Super Bakery Inc. was founded in 1990 by Franco Harris, a former Pittsburgh Steelers

running back. The idea behind Super Bakery is to provide vitamin, mineral, and protein enriched doughnuts and other baked goods. These goods are primarily produced for schools and other institutions (Kimmel, Weygandt, & Kieso, 2009). This paper will answer questions regarding Super Bakery Inc. strategies, and job order cost system. Strategies used Super Bakery Inc. operates as a virtual company that outsources the manufacturing activities (Kimmel, et. al., 2009). Outsourcing manufacturing jobs allows Super Bakery Inc. to minimize operation costs and control activities. Outsourcing also reduces the risks associated with every stage of production. Super Bakery Inc. has also eliminated the expenses that come from owning and operating machinery, maintenance, and repair. other costs that were eliminated are utility expenses, and salaries. The cost of storing raw material and finished goods are also eliminated Method used Super Bakery Inc. enjoys a steady sales growth of about 20% annually, but there was still the problem of controlling the costs associated with outsourcing manufacturing activities (Kimmel, et. al., 2009). Management realized that there was a wide difference in the cost per serving to the customers country wide, but how to solve this was an issue (Kimmel, et. al., 2009). The traditional method employed was to write down the individual company schedules in a way making individual costs and revenues dependent on one another. As a result the final cost per product was evenly distributed (Kimmel, et. al., 2009). The cost of producing the low profit unit was affecting the costs of the high profit units. This made it impossible to tell the

COSTING METHODS PAPER individual cost per unit for the various product lines (Kimmel, et. al., 2009). Super Bakery Inc. decided to start using the activity based coasting method (ABC).

Activity Based Costing (ABC) Activity based costing (ABC) designates costs to activities based on the resources used, unlike the traditional method (Miller, 2011). Using this method will allow Super Bakery to see what the actual production costs are for each individual product. The company is able to better picture of the indirect costs associated with the direct cost of each product. Super Bakery may have a problem using this method after using the traditional method initially. The process can prove time consuming and may give the company more information than is needed (Miller, 2011). This method could turn out to be too costly because Super Bakery has to keep up with the cost for each outsourced manufacturer to assess the true costs of the product. So although the company will learn the cost associated with each activity the ABC method may prove more costly for Super Bakery Inc.

Job costing or process costing Job order costing will allow Super Bakery to determine which costs are associated with each product. The company can better track specific costs (Thomason, 2011). Using this system the company can determine the cost of production per unit without including the unrelated costs because Super Bakery is not directly involved with the production, or shipping, these costs are incurred by the outsourced companies. This cost would go to the process costing method because the process is subcontracted (Kimmel, et. al., 2009). Conclusion

COSTING METHODS PAPER Super bakery Inc. is a virtual company that employs outside contractor for the purposed of manufacturing, producing, and shipping its products all over the country. Finding the right mix of costing methods will allow the company continued successful accounting practiced and profits.

COSTING METHODS PAPER References Kimmel, P., Weygandt, J., & Kieso, D. (2009). Accounting: Tools for Business Decision Making (3rd ed.). Hoboken, NJ: John Wiley & Sons. Miller, V. (2011). The Advantages and Disadvantages of Activity Based Costing. Retrieved from http://www.ehow.com/info_8469151_disadvantages-advantages-activitybasedcosting.html Thomason, K. (2011). Job Order Cost System Definition. Retrieved from http://www.ehow.com/info_8292163_job-order-cost-system-definition.html