Cost Methods

In: Business and Management

Submitted By lvyanks
Words 627
Pages 3
Costing Methods
May 14, 2012

Costing Methods
According to Kimmel, Weygandt, and Kieso (2009), “a traditional costing system allocates overhead on the basis of a single predetermined overhead rate.” Although this may be the best costing method for some businesses, not all businesses are the same. Created in 1990, Super Bakery, Inc. started by using the traditional costing methods to determine costs; however, quickly came to realize that the methods were not taking individual markets into consideration. The purpose of this paper is to elaborate upon Super Bakery, Inc.’s transition from a traditional costing method to an activity-based costing method. In doing so, an attempt will be made to highlight the strategies of Super Bakery Inc.’s management team. Furthermore, this paper will share why the management of Super Bakery Inc. deemed it necessary to install the ABC system. Finally, the paper will divulge why a job order cost system or a process order cost system would or would not work for Super Bakery Inc.
Super Bakery Inc. is a virtual company that outsources most of the manufacturing activities. By outsourcing most of the manufacturing activities, Super Bakery Inc. can save on cost associated with owning machinery. Not only does Super Bakery Inc. save on the cost of the machinery but also on the costly expense of maintenance and repairs. Furthermore, the company could reduce overhead expenses such as salaries and even utilities. By using this strategy Super Bakery Inc. minimized costs and controlled activities.
When Super Bakery Inc. began operations the management team used traditional costing methods. The traditional method may have provided the company with figures needed to determine costs; however, the traditional method was spreading the costs throughout the entire customer base. Management knew that a variation among the customer…...

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