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Accounting Chapter 17 Abc Virtual Corporation

In: Business and Management

Submitted By dkenkade20
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According to the Article “ABC in a Virtual Corporation;” in response to the questions I believe the company is operating under a decentralized system. The challenges that the company was facing during the time was control costs. The pricing strategy did not differentiate between small and large orders, so the profitability of the orders varied. They relied on requesting everyone to keep costs down and distributing the costs evenly. I feel that Super Bakery’s management thought it was necessary to install an ABC System because in the article, Super Bakery’s management suspected that costs were not the same for each order. Although it makes sense the costs in rural Iowa would not be the same as downtown city areas, the article makes it clear that ABC is needed for the differential size of the orders. Baked goods are batch goods, meaning the goods are made, cooked, and wrapped in batches because they are perishable and so you only make exactly what is needed before the ingredients possibly spoil. Large batches differ from small batches in that certain batch costs such as measuring, churning, and baking the ingredients.
Super Bakery is suited to a job order cost system and not a process order cost system. Process cost systems are used when each unit of product is identical and the production process is the same for all batches. There is no change from one customer to the other because the product is standardized. Super Bakery has a range of products that differ in ingredients, batch size, and process, and the order ranges from large too small. This is closer to catering than to mass production of snack cakes to be sold in a supermarket with that being said, the best system for tracking costs is the job order costs. When they receive an order, the cost of the ingredients, warehousing the ingredients, the cost of running the batches, and the wrapping and delivery or shipping, should be identified with the job. This would give them a better idea how to price the larger and smaller jobs and perhaps make them more competitive on larger jobs. Super Bakery moved from a traditional to an activity based costing system in order to recognize that all orders do not cost the same to complete. By tracking the manufacturing, warehousing, sales and shipping costs by order, they are better able to find out which jobs use which resources and distinguish between those jobs in their pricing policies. Further, since they now have details on job resource consumption, they can give their network of associates an incentive to perhaps sell differently. For small jobs, they might price the baked goods per item, which may help the consumers see that the small batches are driving up the costs. This may permit bidding and winning larger jobs. Also, this will allow Super Bakery to have a clearer picture of which jobs are more or less profitable and allow them to retain the best alliances with profitable partners and to release those that are not as successful.

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http://www.superbakery.com/

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