Acc/561 - Week 4 Costing Methods Essay

712 WordsAug 20, 20123 Pages
Week 4: Costing Methods The week four individual paper addresses the implementation of Activity Based Costing (ABC) by Super Bakery, Inc., a virtual corporation founded by Franco Harris. Specifically, management strategies, the reasoning behind an ABC system, and the alternatives of a job order cost system or a process order cost system are assessed for this enterprise. Management Strategies A virtual corporation is described as a technology-linked network of companies, suppliers, and customers that are used by a company to outsource non-strategic business functions (Hershkovitz, 2012). The management of Super Bakery, Inc. identified that they could reduce their costs in permanent staff, fixed assets, and working capital (Kimmel,…show more content…
This type of cost system further allows the activities to be specifically tracked in each of the company’s markets. In a virtual corporation environment, I believe the ABC method to be the most ideal for accurately tracking the costs involved in manufacturing, storing, delivery, and sales. For Super Bakery, Inc. the addition of multiple outsourced companies to their processes meets the criteria of products with manufacturing complexity that requires differing degrees of support services (Kimmel, Weygandt, & Kieso, 2009, p. 876). As a result, I agree with Super Bakery Inc.’s decision to implement an ABC system. Options for Job Order Cost or Process Order Cost Systems I do not believe that either a job order or process order cost system would work for Super Bakery, Inc. Job order cost systems are based on one “work in process” account and a determination of total manufacturing costs at job completion. Because Super Bakery, Inc. is outsourcing many of the product production functions, they will not be able to obtain accurate costs for a particular job. As a result, they will again be forced to “average” the costs for multiple jobs which will result in an inaccurate overhead assessment. Process order cost systems are based on multiple work in process accounts and determine total manufacturing costs at the end of a time period. Multiple outsourced

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