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Week 4 Costing Methods Paper

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Cost Method Problem: ABC a Virtual Organization The Super Bakery supplies mineral, vitamin, and protein enriched baked goods to food markets like school systems. The strategic functions of the company are performed internally. The other activities including sales, warehousing, and shipping are outsourced to various external companies. The following questions explain the costing methods of the Super Bakery and what costing method system is the best process for the Super Bakery.

Cost Methods Evaluated * What strategies and tactics did the management of Super Bakery, Inc. use to increase sales and growth?
Management of Super Bakery Inc. increased sales by combining the external companies together with the parent company for maximized values and work flow. These values include: * Minimum investment * Staffing expenses * Fixed assets * Working capital.
The growth of the company consists of controlling the quality and costs of services, which was not easy when the costs increased for orders in different parts of the country. The high profit margins were subsidizing orders with low profit margins and the Super Bakery needed a system to assign costs to each order correctly. * Why did Super Bakery’s management think it was necessary to install an ABC system? Do you agree with their reasoning? If you disagree, identify your recommended costing system, including your rationale, to management.
I agree with the Super Bakery for installing the ABC system. Activity-Based Costing or the ABC system is ideal for the Super Bakery because this system leads to more pool costs, leads to enhanced control over overhead costs, and leads to management making better decisions. Cost pools are beneficial to the Super Bakery because the costs are assigned according to the cost driver of each product. With the ABC system overhead costs are directly traced to activities. This helps management control these activities and generate costs efficiently. Finally, the ABC system has much better cost accuracy. Management can set prices at maximum profitability, and management can easily decide whether to purchase or eliminate a product by the cost.

* Would a job order cost system or a process order cost system work best for Super Bakery. Include the why and why not?
A job order cost system and a process order cost system would not work for Super Bakery, Inc. for different reasons. A job order cost systems would not work simply because the system will assume direct labor costs, and probably would not accommodate outsourcing. The process order costs system counts the hours as activity that is an overhead (Kimmel, Weygandt, & Kieso, 2009). A job order and process order cost system are both beneficial however they do not have the same support for a company as activity-based cost system would.
Job costing is a product costing system when costs are accumulated by specific job orders and assigned to batches of products. In other words, manufacturing costs are assigned to specific job, specific customers, specific orders, specific projects, and specific contracts. Job costing is preferable to small and medium-sized companies, such as professional services like medical, legal, advertising agencies, construction, shipbuilding, custom equipment/furniture manufacturing. Process order costing system is continual, and the units are essentially indistinguishable from one another. Under process costing a homogenous product is produced on a continuous basis over a long period.
Neither job order costing nor process order costing benefit the Super Bakery like Activity-Based Costing. The ABC system enhances the allocation of costs within the company by manufacturing overhead costs without correlating the productive machine hours or direct labor hours, the ability to allocate costs for diverse products and diverse customer demands, and the ability to separate costs from large batches or small batches.

References
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009). Accounting: Tools for business decision making (3rd ed.). Hoboken, NJ: John Wiley & Sons

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