Costing Methods Paper: Super Bakery Inc

Costing Methods Paper: Super Bakery Inc

Super Bakery Inc. was a virtual corporation preferring to outsource its main business applications. This was with a view of minimizing the cost of operation relative to its income levels. By outsourcing, Super Bakery could control the flow of the activities that yielded its revenue. This was without necessarily acquiring to take the immense responsibility of bearing the risks involved with each stage of production and transaction. This explains the realization of its goal in reduction of expenses. Otherwise, it would incur the expenses through the acquisition of relevant assets for the various processes involved. These processes include machinery for production of the different products, maintenance of these machines as well as their replacement whenever that need came up and the costs of production. Examples of costs of production include the cost of raw materials and other inputs as well as overhead costs such as the cost of electricity, water, salaries and wages for the greater number of employees who would have to be directly and indirectly involved in the process. Costs of transportation of inputs as well as finished products to the various distribution points is also eliminated, as is the costs of storage of raw materials and finished products before transportation to the target market.

Super Bakery employed the traditional costing methods that relied on listing of the costs for the various businesses it had sought to perform the various responsibilities on its behalf. This involved the write down of the individual company's schedule for all firms in a manner that their individual costs and revenues were not independent of Super Bakery's costs schedule. This meant that the final cost per product was spread out evenly in its units of merchandise. Therefore, was not possible to maximize on the highly profitable units caused to their relatively low costs because the low profit margin units whose production costs were high had a neutralizing effect on them. In perspective, the variation in the cost per unit structure is superficially hidden by the unification. It therefore makes it impossible to tell the costs per unit for individual lines of product. This explains the difficulty in controlling individual line of production's costs. This kind of problem is what the need for developing and adoption of activity based costing.

Activity Based Costing, ABC

This method is more efficient than the traditional methods because it puts emphasis on costs in relation to the actions that go with the real production of the individual products. Indirect costs for a particular product are reflected in its direct cost, thus giving Super Bakery a more accurate picture of the profitability of its various products. Additionally, the company can trace the flow of costs more effectively and competently besides enabling it prepare