RUNNING HEAD: Costing Methods Paper

Costing Methods Paper

Costing Methods Paper Super Bakery, Inc. is not your typical bakery. Created in 1990, it is a nationwide supplier of mineral, vitamin, and protein-enriched doughnuts and other baked goods to the institutional food market, primarily school systems. In addition, it is also a virtual corporation, meaning only the core; strategic functions of the business are performed inside the company. All of the remaining activities, for example; selling, manufacturing, warehousing, and shipping, are all outsourced to a network of external companies. With this type of structure traditional costing systems may not be the best option. Super Bakery, Inc. decided to go with activity-based costing (ABC) because traditional costing systems were making significant differences in its real cost structure. (Kimmel, Weygandt, & Kieso, 2009) In order to understand why Super Bakery, Inc. changed to an ABC we must first understand the structure of activity based costing. ABC is an approach for allocating overhead cost. More specifically, ABC allocates overhead to multiple activity cost pools, and it then assigns the activity cost pools to products and services by means of cost drivers.
Justification
Super Bakery, Inc. thought that it would be a good idea to implement this costing system because they have several different costing pools because they outsource so many aspects of their business. Using the ABC system allows Super Bakery, Inc. to carefully and accurately trace their spending in each allocation pool. Furthermore, ABC stops distortion that can occur in traditional overhead cost allocation. More benefits to changing to an ABC system is; ABC leads to more cost pools being used to assign overhead costs to products, ABC leads to enhanced control over overhead costs, ABC leads to better management decisions. (Kimmel, Weygandt, & Kieso, 2009) This is the most logical costing system for Super Bakery, Inc. because it allocates their costs in a more accurate manner, allowing managers to be able to better understand cost behavior and overall profitability.
Other Methods There are other costing methods that