Costing Methods Paper

Costing Methods Paper

Super Bakery Inc. is an organization that was founded in 1990 by former football player Franco Harris of the Pittsburg Steelers. The organization is a nationwide supplier of numerous products such as vitamins, minerals, protein enriched donuts, and numerous other goods. The firm has numerous clients across the country, but its biggest client is the school systems. The organization is handled as a virtual corporation while the core functions of the firm are performed from within the company. This paper will provide the necessary answers to the following questions in regards to Super Bakery Inc.,: what strategies did the management of Super Bakery Inc. use, why did Super Bakery's management think it was necessary to install the ABC system, and would a job order cost system or a process order cost system work for the Super Bakery Inc.?

Management teams for Super Bakery Inc. made sound decisions of that of any well ran corporation. The organization heavily focuses on utilizing external companies when looking at its business operations in selling, manufacturing, warehousing, and the shipping of its products. The reason why the firm has utilized these external companies, is so that it can maximize the company's value, minimize costs in staffing, working capital, and fixed costs. By the organization carrying out these changes, it has allowed the firm to increase their sales by 20% from when the firm was first founded.

One of the challenges that Super Bakery Inc. faces, has been to control the cost of the external activities in which they heavily rely on to complete orders of its products. While management teams observed a huge variation in the cost of serving customers throughout the country, it resulted in the organization paying the same amount of funds to complete orders to these customers using these external methods. Due to this reason, is why a new system such as the activity based costing (ABC) system needed to be implemented. By implementing the ABC system, it allows Super Bakery to have a much more accurate acknowledgement of its cost, which can eventually result in improved pricing. In order to understand why the ABC system was necessary for Super Bakery, one much know what the ABC system does and how it works. The ABC system is, "an approach for allocating overhead costs. More specifically, ABC allocates overhead to multiple activity cost pools, and it