...Costing Methods Paper- Learning Deliverable Team A found that the best method to utilize in the case of cost methods is the absorption method. Although in both the absorption and variable costing method there are net income losses, the loss of revenue for the absorption costing method is far less than that of the variable costing method. By utilizing this method over the variable costing method, we find that Polk Company saves money and can recover from loss by providing a more accurate visual of the profit goals of the company while giving the company a higher net income. Benefits of the absorption method include still have an option to sell the items during another period if the products are not sold within the same accounting period. If a company uses absorption costing that is the only method they will have to use. Flexible budgeting can be implemented and molded around the loss to cover the company from any potential recurrences of that amount of loss in the next year. In contrast, benefits of variable costing methods include having a lower manufacturing cost per unit while ensuring that bills and expenses are taken care over a period of time. This results in a surplus shown if products are sold within that period (Kimmel, 2011). In terms of a competitor submitting lower bids for a product, the variable costing method net income is not affected with changes in production, therefore managers don't tend to make the mistake of overproducing. The reality is that absorption...
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...Management of Super Bakery Inc. University of Phoenix Online/ACC561 December 17, 2012 ABC and Management of Super Bakery Inc. Franco Harris is a former running back. He played for the Steelers and now owns the Super Bakery Inc. Company. This company supplies schools with baked goods like donuts that are vitamin and protein enriched. Super Bakery Inc. is a virtual company. Management Strategies Being a virtual company Super Bakery Inc. has few functions inside the company. The others like warehousing and shipping are outsourced keeping Super Bakery Inc.’s main function to organize the workflow. By doing this Super Bakery Inc. kept machinery and inventory expenses low and has been able to grow an average of twenty percent a year. One major drawback to outsourcing is maintaining relationships with other companies to fulfill the outsourced functions. One advantage of this is “adding maximum value to the company while making the minimum investment in permanent staff, fixed assets, and working capital.” (Kimmel, Weygandt, & Kieso, 2009) The ABC System Activity Based Costing helps to assign resource costs through activities to the products and services. This tool is usually used for understanding product and customer cost and profitability based on the production. ABC is used to support strategic decisions like outsourcing. Traditional costing methods were not working for Super Bakery Inc. Because they are nationwide there is a large cost difference in the...
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...Costing Methods Paper Amy Buckley University of Phoenix Bellevue Campus ACC561 April 2012 Instructor: Solomon Seyoum Costing Methods Paper Understanding and selecting the optimum method of cost accounting is vital to a company’s success and sustainability. Two types of costing methods are available: the traditional cost accounting method or the activity based cost system. Each delivers pros and cons; therefore each company may choose one or the other. The traditional method matches the indirect costs to the volume based products, the hours of direct labor, or the hours of machine production hours (Accounting Coach, 2012). Activity based accounting products eat up activities and lead to consumption of resources. Activities are cost drivers and may not lead to a large number of products being produced. Therefore; distributing costs fall under the following: taking an order, customer challenges, and implementation of new hardware. This provides the company with a clear understanding of: the arrival of a profit, the outflow of money, and the departments of cost reduction (BusinessDictionary.com, 2012). Traditional costing methods versus an activity based cost system, a choice Super Bakery Inc. would review again. Strategies Super Bakery Inc. launched approximately 30 years ago into the food industry. Breaking into the market was slow and challenging; therefore the company developed four strategies to rise above the competition. Super Bakery selected...
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...costs, and apply expenses to each product. It assumes that more cookies baked could cause more overhead expenses. This is an easy method for Aunt Connie's Cookies, but it might not give them enough of the right information to really determine what their product costs are. Aunt Connie's Cookies might decide to use activity-based costing, which looks at costs according to the kind of activity rather than the end product. It is different from the traditional method in that it allows a company to look at their overall systems in detail, so that they can pinpoint any cost inefficiencies. It will especially help Aunt Connie's Cookies if they have greater indirect than direct costs. If Aunt Connie's Cookies used activity-based accounting, they would have to identify their activities, and then assign each activity a set cost. When they have done that, they identify how much each component of each activity costs, and then they take data about each activity. Eventually they can determine the actual product costs, when they divide each product into activities at unit-level, the cost-per-batch, facility-sustaining activities, and product-sustaining activities. Aunt Connie's cookies might decide to use life-cycle cost analysis or total cost analysis. This helps the company understand their products. These are normally a part of activity-based costing, but they can be used individually as well. Life-cycle cost analysis is typically a part of product development, as it reveals the...
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...will be. This would be a simple approach for Aunt Connie’s Cookies, but it may not necessary provide them with sufficient data to properly determine their product costs. Aunt Connie’s Cookies could use activity-based costing, in order to examine its costs by type of activity instead of end product. Unlike the traditional method, it would let the company analyze the overall systems with more detail in order for them to see if there are cost inefficiencies. It would be particularly helpful for Aunt Connie’s Cookies if its indirect costs are greater than its direct costs. If Aunt Connie’s Cookies were to utilize activity-based accounting, it would first need to identify its activities, and then designate a cost to each activity. Once that is completed, a determination of the components of each cost must take place, followed by data collection for every activity. Finally, a determination of the product costs can be made by dividing each product into unit-level activities, cost per batch, product-sustaining activities, and facility-sustaining activities. Total cost analysis and life-cycle cost analysis can also be used by Aunt Connie’s Cookies. This would help the company examine its products. It is, however, typically a component of activity activity-based costing, although it can be used by itself. Life cycle cost analysis is mostly used for both product development and figuring out the total cost of creating a product,...
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