Costing Method
Costing Methods Paper
ACC/561
7 March 2013
Costing Methods Paper Super Bakery, Inc. has broadened its footprint by taking on a new cost system that result in fair pricing by activities instead of product. The strategies used by the company were clear to make the improvements needed to move the company forward. Other cost systems were considered but the activity-based costing approach was best suited to the company’s needs. The job order cost system and the process cost system both track the same information and use the same accounts for costs. The difference is in how the costs are applied to either the department in the process cost system or the job in the job cost system. The activity-based cost system tracks the activities in making the product. “Companies that provide specific, non-routine services will probably benefit from using a job order cost system. Those that perform routine, repetitive services will probably be better off with a process cost system” (Kimmel, Weygandt, & Kieso, 2009, p. 834). Because Super Bakery’s operations are mostly contracted out to different organizations, the activity-based costing system works best for this company. The management decided to try something difference as the traditional costing method did not show the different costs associated with the different customers. The activity-based cost system proved each customer had separate costs associated to overhead, manufacturing, and most important shipping. By moving to the new system managers could see which activities varied by customer and adjust pricing accordingly. “If costs are broken out and assigned accurately when they are incurred, they can be manipulated in a number of different ways to evaluate the profitability and performance of different components of the business” (Davis & Darling, 1996, p. 6). This gives managers the ability to examine the different aspects of costs for the company. Other cost systems do not follow the
ACC/561
7 March 2013
Costing Methods Paper Super Bakery, Inc. has broadened its footprint by taking on a new cost system that result in fair pricing by activities instead of product. The strategies used by the company were clear to make the improvements needed to move the company forward. Other cost systems were considered but the activity-based costing approach was best suited to the company’s needs. The job order cost system and the process cost system both track the same information and use the same accounts for costs. The difference is in how the costs are applied to either the department in the process cost system or the job in the job cost system. The activity-based cost system tracks the activities in making the product. “Companies that provide specific, non-routine services will probably benefit from using a job order cost system. Those that perform routine, repetitive services will probably be better off with a process cost system” (Kimmel, Weygandt, & Kieso, 2009, p. 834). Because Super Bakery’s operations are mostly contracted out to different organizations, the activity-based costing system works best for this company. The management decided to try something difference as the traditional costing method did not show the different costs associated with the different customers. The activity-based cost system proved each customer had separate costs associated to overhead, manufacturing, and most important shipping. By moving to the new system managers could see which activities varied by customer and adjust pricing accordingly. “If costs are broken out and assigned accurately when they are incurred, they can be manipulated in a number of different ways to evaluate the profitability and performance of different components of the business” (Davis & Darling, 1996, p. 6). This gives managers the ability to examine the different aspects of costs for the company. Other cost systems do not follow the
References: Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009). Accounting: Tools for business decision making (3rd ed.). Hoboken, NJ: John Wiley & Sons Davis, T. R. V., & Darling, B. L. (1996). ABC in a virtual corporation. Management Accounting, 78(4), 18-18. Retrieved from http://search.proquest.com/docview/229765917?accountid=35812