...Costing Methods ACC 561 July 15, 2014 Costing Methods Absorption and variable costing are two methods an organization such as Polk Company can employ when accounting for costs and generating income statements. The differences between the two methods are focused on the types of costs absorbed or assigned to the product, specifically fixed and variable overhead expenses as well as when fixed overhead manufacturing costs are allocated. In absorption costing all costs are charged to the product including direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overheard (Kimmel, Weygandt, Kieso, 2011). In variable costing direct materials, direct labor, and variable manufacturing overhead is charged to the product, and fixed overhead expenses are considered period costs (Kimmel et al. 2011). In addition, full absorption costing is considered a generally accepted accounting principle (GAAP) and used for external reporting purposes whereas variable costing is used for internal reporting (Stevenson, Barnes, & Stevenson, 1993). The Polk Company benefits more from using the absorption method because the overhead expense is allocated on the basis of 80,300 units sold. The variable costing method calculates the fixed overheard costs based on the 94,500 units produced for the period. In this case the absorption method provides management with a more accurate assessment of the fishing lure profitability. Under the absorption costing method, the product...
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...Running head: COSTING METHODS PAPER Costing Methods Paper Marsha Pettus University of Phoenix Accounting ACC/561 Bethany Kessel November 27, 2013 Costing Methods Paper Super Bakery, Inc. was founded by Franco Harris, formerly of the Pittsburgh Steelers, in 1990. The corporation supplies healthy, vitamin enriched doughnuts and other baked goods, out of an initial desire to make a difference in the institutional food market by targeting school systems nationwide (Kimmel, 2009). While, the company experiences positive growth since its inception, Super Bakery is at the point where it needs to explore a costing system that can establish a more accurate product costing method that can, at minimum, improve control of overhead costs. What strategies did the management of Super Bakery, Inc. use? Formed as a virtual corporation, Super Bakery designed a business model that performs key strategic planning and business functions in-house while outsourcing all manufacturing components as a cost reductions strategy. Super Bakery successfully maximizes profits by outsourcing all other components such as sales, manufacturing, warehousing, and shipping to external companies (All Business, 2012). As a result, Super Bakery watched its profits successfully grow, on an annual basis by 20%, since its inception in 1990. Why did Super Bakery’s management think it was necessary to install an ABC system? Super Bakery, Inc. believed it was necessary...
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...COSTING METHODS Costing methods for Super Bakery University of Phoenix ACC/561 December 19, 2011 Timothy W. Williams, Ph.D. Costing methods for Super Bakery Super Bakery is a virtual corporation created in 1990 by Franco Harris, developing a network of supply for “donuts and other baked goods aimed for the institutional food market” (Kimmel, et al, 2009, pg 867). According to Kimmel, et al (2009), “only the cores, strategic functions of the business are performed inside the company. The remaining activities, selling, manufacturing, warehousing and shipping are outsourced to a network of external companies,” (p.865). Management Strategies The current management strategy was job order based upon the outsourcing of the jobs. While the company was realizing a 20% annual growth rate, management still found that the current system was allowing a wide variation in cost control. (Kimmel, et al, 2009, pg 865).When it was noticed that “orders with high margins were subsidizing orders with low margins” (Kimmel, et al, 2009, pg 867), in the current strategy, the need for a new strategy became apparent. The move to an activity based costing system (ABC) that will show the costs produced by each activity performed rather than the job appears to be the correct choice. Managements Installation of ABC Super Bakery Inc will benefit from the implementation of the ABC system because the costs are tracked by each account in conjunction with performance...
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...Costing Methods ACC/561 March 12, 2012 Monique Smalling Super Bakery Super Bakery is a virtual company that handles only core functions of the business while all other aspects are outsourced. Even though the bakery became a leader in the institutional baked goods market the company had reoccurring issues containing costs and ensuring the quality of their products. The management team at Super Bakery decided to implement and activity based costing plan to help maximize profits and ensure quality products to customers. However, Super Bakery had an additional challenge when implementing a cost system. Because the majority of functions are outsourced, the costing plan needed to help the company maintain control over those outsourced functions Strategies In order to make a costing system functional in a virtual company, Super Bakery needed to put into place several strategies that would cater to the specific virtual challenges. The first simple strategy that was put into place by Super Bakery was simply to question industry practices and to develop unique strategies and tactics (Davis & Darling, 1996). When management asked these questions they discovered that there was a market that traditionally received poor and underrated service; the school systems and institutional food market. The bakery developed healthy baked goods to meet the ever-increasing nutritional standards that government run facilities faced. This strategy allowed the company...
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...Costing Methods Strategies Used By Super Bakery Inc. Super Bakery Inc. was a virtual corporation preferring to outsource its main business applications. This was with a view of minimizing the cost of operation relative to its income levels. By outsourcing, Super Bakery could control the flow of the activities that yielded its revenue. This was without necessarily acquiring to take the immense responsibility of bearing the risks involved with each stage of production and transaction. This explains the realization of its goal in reduction of expenses. Otherwise, it would incur the expenses through the acquisition of relevant assets for the various processes involved. These processes include machinery for production of the different products, maintenance of these machines as well as their replacement whenever that need came up and the costs of production. Examples of costs of production include the cost of raw materials and other inputs as well as overhead costs such as the cost of electricity, water, salaries and wages for the greater number of employees who would have to be directly and indirectly involved in the process (Staubus, 1971). Costs of transportation of inputs as well as finished products to the various distribution points is also eliminated, as is the costs of storage of raw materials and finished products before transportation to the target market (Horngren & Foster, 2003). Super Bakery employed the traditional costing methods that relied on listing of the costs...
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...Costing Methods Paper ACC/561 July 1, 2012 Costing Methods Super Baker previously used the traditional costing system to manage its cost management. Super Bakery changed its business strategy to an Activity-Based Costing system, to identify at the activities associated with each order. Because Super Bakery outsources its business operation, an Activity-Based Cost system would be beneficial to track effectiveness of each vendor. Activity-Based Costing strategic gives the company detailed information of its operational performance to adjust the strategic planning for better profit margins (Kimmel, Weygandt, & Kieso, 2009). Activity-Based Costing System Super Bakery management installed the Activity-based system because the traditional costing system was not effective tracking the profit margin for the company expenditures. Super Bakery has an elevated overhead cost because of the numerous outsources entities used. The Activity-Based Cost system is used to monitor the activities of each vendor and the process of manufacturing, and distribution. Understanding that overhead costs represent a dominate portion of total costs, Kimmel, Weygandt, and Kieso (2009) state Activity-Based Cost leads to more cost pools used to assign overhead costs to products. Activity-Based Cost is effective for controlling of overhead costs, and monitors costs direct or indirectly involved in product activity. Activity-Based Cost is an important factor in management decisions that are dependent...
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...Costing Methods: Super Bakery ACC 561 Costing Methods: Super Bakery, Inc. Super Bakery, Inc. has a strategy in place that is in place to add maximum value to the company all the while making investments that are minimal. The company initiated an outsourcing strategy; instead of a multifunctional organization by taking activities that were selling, manufacturing, warehousing, and shipping. The outsourced companies will be combined and this will allow for a more organized work flow (Kimmel, Weygandt, & Kieso, 2009). The managers and employees at Super Bakery, Inc. thought it was a good idea to implement an activity-based costing system (ABC). This system would create a tracking system that would be more accurate on dealing with the costs in each order. By using the ABC system Super Bakery are hoping to improve their pricing and also has different customers that are located around the country (Kimmel, Weygandt, & Kieso, 2009). In my opinion the activity-based costing system is the best system that was chose by Super Bakery. The ABC system uses unit costs and not total costs, by choosing this method; it will show the costing system a little better. Super Bakery can use the ABC system as a way to track the costs of their products they have to suppliers and distributors. This company believes that because of these reasons this chosen system will work and be effective. A job order cost system and a process order...
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...Costing Methods Heidi Loebig Costing Methods Absorption and variable are two costing methods used in accounting; both costing methods have advantages and disadvantages. In absorption costing manufacturing costs being absorbed by the product. Product costs under variable accounting include direct labor, material costs, and variable manufacturing overhead. The Polk Company used variable and absorption costing to generate income statements. Both the variable and absorption income statements showed net income at a loss. The absorption income statement recorded a higher net income; because manufacturing overhead costs are part of the production costs. Absorption costing allows the Polk Company to record a higher net income and is consistent with generally accepted accounting principles. Absorption and variable costing methods assist in the decision-making process and have advantages. Absorption costing includes manufacturing overhead costs up front versus variable costing where manufacturing overhead costs are a periodic expense. Variable accounting is consistent with cost-volume-profit (CVP); net income does not change with production levels, making it easier to see the impact fixed and variable costs have on net income. With variable costing, net income is tied to sales level, not production levels. The presentation of a variable cost income statement allows for easier identification of cost and their effect on business. Variable costing allows managers to see...
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...Methods and Techniques of Costing: Problems on Operating Costing Prof. R Raja Gopala Sastry [1] Methods and Techniques of Costing: Problems on Operating Costing Prof. R Raja Gopala Sastry [2] Methods and Techniques of Costing: Problems on Operating Costing Prof. R Raja Gopala Sastry [3] Methods and Techniques of Costing: Problems on Operating Costing Prof. R Raja Gopala Sastry [4] Methods and Techniques of Costing: Problems on Operating Costing Prof. R Raja Gopala Sastry Cost per ton 120 200 80 [5] Methods and Techniques of Costing: Problems on Operating Costing Prof. R Raja Gopala Sastry Cost per ton of raw material 360 840 50 [6] Methods and Techniques of Costing: Problems on Operating Costing Prof. R Raja Gopala Sastry records of oil mills for the year ended 31st Dec 1999 [7] Methods and Techniques of Costing: Problems on Operating Costing Prof. R Raja Gopala Sastry 3000 tons of crude oil was purchased. 2500 tons of [8] Methods and Techniques of Costing: Problems on Operating Costing Prof. R Raja Gopala Sastry [9] Methods and Techniques of Costing: Problems on Operating Costing Prof. R Raja Gopala Sastry Ledger accounts. [10] Methods and Techniques of Costing: Problems on Operating Costing Prof. R Raja Gopala Sastry Prepare relevant accounts. [11] Methods and Techniques of Costing: Problems on Operating Costing Prof. R Raja Gopala...
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...Cost Accounting : An Introduction MODULE - 6B Elementary Cost Accounting 27 COST ACCOUNTING : AN INTRODUCTION After passing your senior secondary examination, if you set up a small manufacturing unit, say manufacturing of packing boxes, a problem will arise what price of each box you should quote to the buyer. Many factors are considered while fixing the price of a product/item such as competitors’ price etc. One of the basic factors is the cost of its production. Cost is essential not only to fix price but also to ascertain the margin of profit. Knowledge of the cost determination is also necessary to keep a check on the cost of product/control on wastages, etc. The accounting used to study the various aspects of cost is known as cost accounting. In this lesson, you will learn about meaning, importance, limitations etc. of cost accounting. Notes OBJECTIVES After studying this lesson, you will be able to: state the meaning and scope of cost accounting; explain the objectives of cost accounting; differentiate between cost accounting and financial accounting; state importance of cost accounting; explain limitations of cost accounting. 27.1 MEANING AND SCOPE OF COST ACCOUNTING Cost accounting is the process of determining and accumulating the cost of product or activity. It is a process of accounting for the incurrence and the control of cost. It also covers classification, analysis, and interpretation of cost. In other words, it is a system of accounting, which provides...
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...COSTING METHODS PAPER Super Bakery Inc. ACC/561 March 28, 2012 Deborah Adkins COSTING METHODS PAPER Super Bakery Inc. The costs of a company can be classified according to different criteria. Depending on the method we have Direct, indirect, Fixed and, Variable costs. There are also costs that have a mixed nature: they can be semi-fix or semi-variable. And of course the costs that as already incurred on or are still pending which are Potential and, incurred costs. The same way there are different methods of costing that every industry fallow to establish the cost of their products depending on the nature of their products and the type of organization. Some of the most important or most used methods of costing are: job, contract, batch, process, service and operation costing there is also a method call Activity Based Method or ABC which one of the most important management innovations of the last hundred years and considered a new method for defining the costs of products and services. Under this new methodology, the bases used in the determination of indirect costs and some administrative costs are units of measure determined by the most significant operational activities undertaken during the production process. In the case of Super Bakery “a virtual, nationwide supplier of mineral, vitamin and protein enriched baked goods to the institutional food market” (John Wiley & Sons, 2009). The company needed to coordinate and regulate many functional activities...
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...Costing Methods Tony Zazzarino University of Phoenix Costing Methods Super Bakery Incorporated is a nationwide bakery that supplies bakery items to schools. Super Bakery is a virtual corporation that performs only strategic parts of the business, and the other activities are outsourced. The company wanted to the maximum value with little investment in operating functions. The company has reviewed the initial strategy to increase the profit while improving some of the current systems (Kimmel, Weygandt, & Kieso, 2009). Strategies The initial strategy of the company was to charge the same for every customer order making an assumption that each order cost the same to make. The management team took the cost and spread the costs evenly over the customer base with the knowledge that each customer order was a different cost (Kimmel et al., 2009). The management’s strategy was the orders that cost the company more to make were offset by the orders less costly to make. The management of the company realized the company had a better profit potential if the company used an activity-based costing system (ABC). ABC System The decision the management of Super Bakery made to install an ABC system was a good decision. The company needed to realize the cost of each order versus the overall cost of the outsourcing. An ABC system will allow the management to find the actual cost of each outsourced company. The installation of...
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...for production of the different products, maintenance of these machines as well as their replacement whenever that need came up and the costs of production. Examples of costs of production include the cost of raw materials and other inputs as well as overhead costs such as the cost of electricity, water, salaries and wages for the greater number of employees who would have to be directly and indirectly involved in the process (Staubus, 1971). Costs of transportation of inputs as well as finished products to the various distribution points is also eliminated, as is the costs of storage of raw materials and finished products before transportation to the target market (Horngren & Foster, 2003). Super Bakery employed the traditional costing methods that relied on listing of the costs for the various businesses it had sought to perform the various responsibilities on its behalf. This involved the write down of the individual company’s schedule for all firms in a manner that their individual costs and revenues were not independent of Super Bakery’s costs schedule. This meant that the final cost per product was spread out evenly in its units of merchandise. Therefore, was not possible to...
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...Costing Methods Paper Monisha Bisor ACC/561 November 21, 2011 Carol Demuth Super Bakery, Inc. Super Bakery, Inc. was formed in 1990 by Franco Harris, a former professional football player. Super Bakery sells vitamin and nutrient-enriched baking goods as a virtual corporation. Super Bakery’s selling, manufacturing, warehousing, and shipping activities are outsourced to external companies in different locations. Strategy Super Bakery faced several challenges in the first four years of operating. They needed to penetrate an existing market that had seen little growth in the baking goods sector. Management realized the need for change. They began to develop unique strategies. The first strategy was to target the school system segment of the food market with healthy, low-calorie, nutritious donuts. This was appealing to the school system market because Super Bakery’s product would help increase sales that were declining due to increased government health requirements. Next Super Bakery began refrigerating, vacuum sealing, and distributing their products across the nation. They were able to break the barrios of local markets and they became a national presence. They gained numerous customers and provided good customer service. Super Bakery helped its customers saved money, too. Finally, Super Bakery was able to lessen investment in permanent staff, fixed assets, and working capital by outsourcing all operating activities and becoming a virtual corporation...
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...Costing Methods ACC561 - Accounting Michael Gaspar, CPA Costing Methods In every business, management needs to have a way to track their costs. These costs can be related to production, inventory, shipping, or overhead. There are many different ways for management to track these changes. Management can choose between traditional costing methods, job order costing system, process order cost system, and activity based costing. In our example, Super Bakery chooses to change their costing method to activity based costing to track their profit margins. In this paper, we will examine the strategies used by Super Bakery, reasons for changing to an activity based costing method, and if another costing method would have been a better choice. Strategies used by Super Bakery Inc. Unlike many production based organizations that produce all products in house as well as operate their sales division in house, Super Bakery contracts other organizations to sell, manufacture, warehouse, and ship the products under the Super Bakery name. By doing this, Super Bakery is able to keep its overhead low and continue to make a profit on their products. The other organizations incur the employee wages, machinery costs, and other expenses which are not billed to Super Bakery. Super Bakery can have four different companies handle the majority of operations, and they sit back and receive the profit. Why was it necessary to install an ABC system? Prior to installing an activity based costing...
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