DesVoignes Week 4 Costing Methods Essay

Submitted By jdesvoignes
Words: 749
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Costing Methods – Super Bakery
Janine DesVoignes
Accounting 561/MBAW16K7S2
February 25, 2013
David W. Kochevar

Super Bakery Super Bakery is a nationwide supplier of mineral, vitamin, and protein enriched baked goods to the institutional food market. As a virtual corporation outsourcing functions of selling, manufacturing, warehousing, and shipping to a network of external companies allows Super Bakery to focus only on core, strategic functions inherent within the company. This virtual concept adds maximum value while maintaining minimum investment in labor or permanent organization structure. As a result of this strategic focus, Super Bakery grew at a 20% average annual rate since 1990 gaining market share and establishing a firm foothold (Davis & Darling, 1996).
Targeting the school system segment of the institutional food market with low-calorie, vitamin enriched baked goods helped Super Bakery grow annual sales in a market of health conscious consumers. By offering refrigerated, vacuum-sealed products, Super Bakery could focus on a national presence instead of relying on local market penetration. Through teaming with customers and suppliers, Super Bakery reduced inventory carry costs through just-in-time delivery strategies. Finally, through the virtual corporation concept focused on reducing capital investment and overhead expenses, Super Bakery has managed a high return on equity and net assets. Operating profits of twice the industry average validates the strategic focus is heading in the right direction (Davis & Darling, 1996).
Activity-Based Costing
Identifying costs associated with activities shows the costs and profit margins identified with processes or customers. Super Bakery used this costing method to allow managers to trace the profitability and effectiveness of each customer’s account and the performance of outside contractors by focusing on capturing costs by customer order instead of the traditional use of activity-based costing on products (Davis & Darling, 1996). By using a standard cost system expenses are allocated per order regardless of the time, effort, and energy involved in the transaction. Activity-based costing assigns the costs directly as costs incur or indirectly through cost drivers. This system of costing accurately captures costs per order and assigns costs per individual customer. Passing on higher costs consumed to specific customers instead of spreading costs to the entire customer base. Tracking and evaluating the profitability and performance of different components of the business, easily allows management to identify process improvements and inefficiencies. Activity-based costing gives Super Bakery leverage in controlling contractor behavior and spending of Super Bakery’s resources. External contractors operate with different guidelines than internal employees focusing on what makes their job easier regardless of the costs imposed. By tracking significant cost drivers like transportation, Super Bakery can contract with the most efficient supplier.
Alternative Costing Systems
Process order costing would benefit Super Bakery in determining the total cost and the unit cost of each product and comparing the process order costing based on customer or regional location per supplier. The information derived through this costing method helps to compare manufacturing suppliers and choosing the most economical company. Because fixed contracted costs control expenses rather than variable, controlling this expenditure means a better net profit.
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