Running head: COSTING METHODS

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Costing Methods Travis Carr ACC561 June 12, 2012 Guy Gagliardi University of Phoenix

decided to only keep “the core. Being that Super Bakery. Inc. Instead. and shipping would be more productive for their virtual company. Inc. fixed assets.” (Davis & Darling. has little activities performed within the organization.” (Davis & Darling. and working capital which has allowed their business to grow in sales. 1996). they have limited permanent staff. sales to increase at the rate of 20% annually. Inc. manufacturing. Super Bakery. This paper’s purpose is to determine the strategies management used when installing the organizations new activity-based costing system (ABC). and protein enriched doughnuts and other baked goods to the institutional food market. and have outsourced their other needs to a network of other organizations. was created by Franco Harris in 1990. Also. Management Strategies As previously discussed. 2 Inc. “is a nationwide supplier of mineral.COSTING METHODS Costing Methods Super Bakery. strategic functions of the business performed inside the company. vitamin. warehousing. and primarily school system. after many successful years playing professional football for the Pittsburg Steelers. is a virtual corporation in which only the core. 1996). strategic functions of the business are performed inside the company. The outsourcing of company activities was received favorably and has allowed Super Bakery Inc. 1996). this paper will determine whether or not job order costing or process order costing systems would work for the organization. decided that outsourcing much of their activities such as selling. Like other many large organizations Super Bakery. Inc. Inc. This strategy maximizes an .” (Davis & Darling. Super Bakery. “Super Bakery.

Inc. customer orders can more easily be tracked and pricing can be set more accurately in different locations. Inc has made a decision to install an ABC system because they have found that their previous system was not accurate enough to track customers as they wished. ABC system show a more detailed view of the entire costing system. The old system had higher priced locations subsidizing lower price locations so every customer order seemed as though they were of equal value. etc. management’s decision to install an ABC system. Also. is that the organization outsources most of its activities. ABC System Super Bakery. (Davis & Darling. then every customer order can be tracked separately and therefore a better pricing model can be made by the organization. Since most of the activities are outsourced.. can drastically affect pricing models and make distribution more efficient. . it is nearly impossible to create a system with direct labor costs every time. By using unit cost rather than total cost. suppliers. 1996). the ability to now track distributors. Management believes that by switching to an ABC system. (Davis & Darling.COSTING METHODS organizations maximum value and minimized overhead and other expenses. 3 I agree with Super Bakery. Inc. Costing Systems The main problem with using a job order system for Super Bakery. The only possible way that a job order system could work is if the current system of manufacturing was scrapped and the organization decided to manufacture everything themselves.. In that case they could estimate the direct labor costs of every job correctly. 1996). If the ABC system works like it is supposed to.

Inc. Inc. the process order costing system would also not work well for Super Bakery. ABC systems will allow for a much more effect pricing model in which the organization can use to create higher profits and less wasteful distribution to areas that do not need the previously sent products. & Kieso.COSTING METHODS Similarly to the job order system. It seems clear that the best costing system for Super Bakery. 2009). (Kimmel. Inc... Inc. The reason for this is because the way process order costing works is that overhead is used when dealing with activities. etc. it would be very difficult for 4 other organizations estimates to match each other.. Weygandt.. Inc. is the ABC costing system that has been implemented. majority of activities. By outsourcing much of their activities to other organizations. The ABC system has truly a good decision on behave of Super Bakery. Conclusion By implementing the ABC system Super Bakery. vendors. management and will help their organization succeed in the future. suppliers. Job order costing and process order costing would simply not be reliable or accurate enough because of the outsourcing nature of Super Bakery. . will have more accurate monitoring of their customer’s orders. distributors.

P. (2009). NJ: John Wiley & Sons 5 . October).COSTING METHODS Reference Davis. E.. Weygandt. B. Hoboken. ABC in a Virtual Corporation. J. Accounting: Tools for business decision making (3rd ed. (1996.. Kimmel. D.T.). & Darling. 18-26.. & Kieso. pp. Management Accounting. J. D.