Super Bakery Analysis - Accounting 561

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Super Bakery, Inc. is a “nationwide supplier of mineral, vitamin, and protein enriched doughnuts and other baked goods to the institutional food market, primarily school systems.” This corporation is what is known as a virtual corporation. A virtual corporation is one that outsources most of its operations and only keeps the core strategic parts of the business in house. The following will describe the strategies Super Bakery, Inc. used to help grow its sales by an estimated 20% annually, why they switched to an Activity Based Costing system, and if a job order or process order costing system would work for Super Bakery. A challenge Super Bakery, Inc. has been faced with is, knowing how to control costs of its outsourced activities. Using their traditional costing methods it appears as if the production of a donut in one part of the country costs the same to produce as it does in another part of the country. Essentially, the profits from one part of the country were hiding, or offsetting, the losses from a different part of the country. This phenomenon does not lend itself to controlling costs and has an impact in how the product is priced to their customers. Management needed to identify the true cost of production to better price their products and to negotiate better rates with their vendors. Therefore, to better identify their costs Super Bakery, Inc. adopted the Activity Based Costing system, or the ABC system. The Activity Based Costing system is a more accurate method of collecting data about costs in their business. Specifically, Activity Based Costing allocates overhead to multiple activity cost pools, and it then assigns the activity to a cost pools to products and services by means of cost drivers.” By making this switch Super Bakery, Inc. is able to produce profitability at the customer level. In order to control costs, Super Bakery, Inc. needs to understand the materials, labor, and manufacturing overhead by each location of its...
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