Costing Systems Introduction After completing the “Broadening Your Perspective” communication activity in chapter 17 in Accounting: Tools for business decision making, the author was able to determine what strategy Super Bakery, Inc. used to make their business run in a more efficient manner. In this essay, the author discusses why Super Baker’s management felt it necessary to install an activity-based costing (ABC) system. The author shares whether or not he agrees on the reasoning of this decision and a rationale following this is also shared.
It is also discussed whether or not a job order costing system or process order costing system would work for Super Bakery, and why. Strategies implemented by Super Bakery Super Bakery, Inc was trying to use a strategy that would add maximum value to the company while making minimal investments, which would give the company “the biggest bang for the buck”. Specifically, the strategy the company decided on was to outsource manufacturing, warehousing, selling, and shipping. As a part of this strategy Super Bakery, Inc. as could combine these outsourced companies and organize the workflow (Kimmel, Weygandt, & Kieso, 2009). Why install the ABC System? Super Bakery’s management decided to implement an ABC system, because the business wanted to create a more accurate tracking system of the costs for each and every order. By using the ABC system the business could improve pricing. Super Bakery, Inc also suspected a wide variation of customers in different parts of the country (Kimmel, Weygandt, & Kieso, 2009). The author agrees that Super Bakery’s reasoning on the ABC system was the best choice.
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This type of system uses unit cost instead of total cost to show a better view of the costing system. The idea behind this business management decision was to improve the costing methods by using a system that could track the suppliers, distributors, and the costs of the products. Super Bakery needed to use a system that would be cost allocated based on multiple bases. This is why the ABC system works perfectly for Super Bakery. Also, an additional benefit is that the different outsourcers can be placed in their own specific activity cost pool.
Why not install job or process order cost systems? It is the author’s opinion that a job order cost system or a process order cost system would not work for Super Bakery. The reason that a job order cost system would not work for the business is because the system assumes direct labor costs, and therefore would not work for outsourcing estimates. The process order cost system counts machine hours as a relevant activity in which it assigns overhead (Kimmel, Weygandt, & Kieso, 2009).
While both cost systems are beneficial in other scenarios, they do not offer the support that an ABC system could offer. If the wrong cost system is selected, gathering of data could become too time-consuming as well as increasingly expensive. The job order cost system and the process order cost system could cause numerous inaccuracies due to the several different outsourcers that Super Bakery uses. The ABC is the type of cost method that should be used for complex multiple allocation bases. Conclusion Businesses can learn a valuable lesson from this activity.
Businesses can learn how to manage their company more efficiently by installing the right cost system for the right business model. In this scenario, we can see how the ABC system truly fits the scenario better than a job order cost system or process order cost system. The author has a better understanding of the benefits that the ABC system has to offer complex multiple allocation bases. 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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