Running Head: Costing Methods Paper
Costing Methods Paper
Lavelle Haynes
ACC/561
February 14, 2011
Professor Micheal Gaspar
Super Bakery is a distinguished company created in 1990. The company has is a supplier of mineral, vitamin, and protein enriched doughnuts. The strategy applied by the company is job order cost method. 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 (e.g. medical, legal), advertising
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The ABC method means that all the individual activities part of a process can be accurately cost. This is what Super Bakery needs to set the value of the company based on the activities of individual assets (management, staff, manufacturing and warehouse). The activity- based cost system allows the company to identify where high (and low) costs are being incurred and the cause. How can a company survive with a 20% growth rate in twenty year duration? The desire to change was required and ABC is the best cost system for Super Bakery. The ABC method helps with future product planning and the cost of all activities associated with a product or service can be accurately determined before it is launched. This can help with determining pricing, and any associated expenditures of the company. The objective was to move from the concept of job cost system that the company mimicked. The notion of job order is a disadvantage to Super Bakery. The order cost of its customers was at a fixed cost. The problem exist as the orders with high margins subsidized low margins. Profit margins are not recognized by the cash flow produced by order. A process cost system could be used by the company but will impose disadvantages. Process costing advantages include the ability for companies to create a cost for products where it is difficult to track cost flows for each
I do not believe that either a job order or process order cost system would work for Super Bakery, Inc. Job order cost systems are based on one “work in process” account and a determination of total manufacturing costs at job completion. Because Super Bakery, Inc. is outsourcing many of the product production functions, they will not be able to obtain accurate costs for a particular job. As a result, they will again be forced to “average” the costs for multiple jobs which will result in an inaccurate overhead assessment.
I do not believe that either a job order or process order cost system would work for Super Bakery, Inc. Job order cost systems are based on one “work in process” account and a determination of total manufacturing costs at job completion. Because Super Bakery, Inc. is outsourcing many of the product production functions, they will not be able to obtain accurate costs for a particular job. As a result, they will again be forced to “average” the costs for multiple jobs which will result in an inaccurate overhead assessment.
“Companies can choose to use the accounting job order costing method when they have a single product line or numerous products to manufacture. However, it is less costly and less time-consuming if they elect to use process costing when calculating the manufacturing of a single product line. With similarities
Under an ABC system, the allocation of costs to products is achieved through at least four analytical steps. Firstly, costs are grouped into activity levels. Secondly, cost drivers are
Activity-based costing (ABC) methodology is an instrument designed to provide accountants and managers with valuable costing information that will allow them to make sound strategic decisions. It is used as a secondary methodology rather than a replacement for the company’s primarily costing system. The ABC methodology identifies activities in an organization and for each activity it assigns a cost. The cost reflects the actual resource consumption by each activity that has been identified.
Super Bakery, Inc. was founded in 1990 by Franco Harris, former Pittsburgh Steelers' running back. The company is a supplier of doughnuts enriched with minerals, vitamin, and protein as well other baked commodities to the primary school systems and institutional food market throughout the nation. Since it's a virtual corporation, the core strategic functions of the business are carried out within the company. On the other hand, the other activities of Super Bakery, Inc. are outsourced to a network of external organizations. The business in turn organizes the work flow of and draws together the external companies in this process. This helps the company to add maximum value while making minimal investments in working capital, fixed assets, and permanent staff. The outsourcing to a network of other companies has enabled Super Bakery to increase its sales at average annual rate of 20 percent.
The purpose of this paper is to show people how they can afford medications that they need to live a good quality of life and drain their wallets with the need for their diabetic medication. This topic is known by many, especially those who are directly impacted. The information and research being provided in this article are facts given from reliable resources. There have not been any direct studies on how to save money with having needs for things such as diabetic medication. Research has been done to show the increase in cost for medication and how large of an impact is has on pharmaceutical drugs. The research given was done by using a search engine called Google Scholar. To display a thorough analysis and give legitimacy to the
Wilkerson’s existing cost system is based on traditional cost system, where all the manufacturing overhead is expressed as a percentage of the direct labor.
An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers (Curtin, 2006). UPS utilizes the Activity-Based Costing (ABC) system. ABC assumes that activities cause costs and that cost objects create the demand for activities (Marx,
This method aims to compare two or more treatment alternatives, having equal safety and efficacy. However, it is must that, the two alternatives must be therapeutically equivalent (with the same safety and efficacy). This method is simple and relatively straightforward in which two or more alternatives having same safety and efficacy are selected, their costs are measured, compared, and the alternative with least cost is identified. Therefore, it helps to identify the least costly treatment among the alternatives. As a result, helps to include drug in the formulary, include the drug in health care policies, exclude the drugs with high cost comparatively from the formulary, and to increase the utilization
Activity-based-costing (ABC) system find activities as the drive for each cost, calculate the average cost per driver’s activity, and times budgeted activities for budgeted cost. It is worth mentioning that ABC system is not used to find problems in cost records, or predict future cost based on that.
The ABC method is a good fit for Super Bakery. The job order cost system works for SB because it assigns cost to each account identifying services or products that are profitable. Therefore, access to the company’s profits for each individual job and the profitability of the outsourced activities allows managers to make educated decisions about the company’s financial needs. By using financial reports managers
Nowadays, we know that activity based costing system assigns overhead costs to products or services products that using a two-stage process, which focuses on activities. ABC is a relatively new and very important topic in managerial accounting. ABC allows us to find a way that we could determine the profitability of every product, profitability of every customer we serve, and the profitability of our process. Contents in brief, first that comparing potential advantages of ABC versus traditional costing methods. The
The Coca-cola company is a homogeneous product manufacturer company. With 1.7 Billions units sold a day, the company is the largest soft drink manufacturer in the world and hence it becomes important to have a simple accounting system to determine how much these products should be sold at. The process costing determines the average cost for each unit so that it is easy to sell both a large amount of products or a small amount and understand how much profit is being made on the products. This type of accounting system would not be as effective if the company was creating many different items that had different costs of tasks throughout the process.
Activity-based management, activity-based costing and continuous improvement, all these help in the improvement of the efficiency in manufacturing, better control of overhead costs and the accurate costing of products. With this in mind, We disagree with the advice that Chuck Davis, the firm’s controller, gave Leonard Bryner. The traditional way of costing produce average costs that severely overstated or understated. Without the accurate costs, the firm would not be able to price properly their products and that would be damaging to the firm. With activity-based costing and management, all costs are accounted for with the help activity-drivers and overhead costs are decreased. In turn, the costs that the firm has for their products are more accurate and pricing is much easier.