Acc 561
ABC System in Super Bakery Inc.
(Introduction) –
What strategies did the management of Super Bakery, Inc. use?
Installation of the Activity-Based Costing System
Super Bakery was formed in the 1980’s during a time when the barrier to entry into the baked goods industry was limited. They started the company using the industry’s standards and following them very strictly. The first four years of Super Bakery were not profitable and management knew they had to make changes so the company could succeed. They first changed their customer base and focused on school cafeterias. They had to make a unique product that would be approved by the USDA (Davis and Darling, 1996). The master chef created a donut recipe that surpassed USDA standards and the company was able to break into the institutionalized food market. Super Bakery also refrigerated and shipped their products nationally. This provided them a competitive advantage over their competitors. As a virtual corporation the decision to contract major parts of the company to other business reduced their fixed overhead and gained very high return on equity and net assets. With all of these changes Super Bakery management still found inefficiencies with the amount of control they had over the costing of the outsourced parts of the company. They chose to implement an activity based costing system to figure out where the improvements could be made. As opposed to a normal ABC system, they used their database to assign costs to specific customers and to their outsourced contractors provided service to the customers. The cons for the ABC were the matrix design of figuring out specific cost drivers, it also was an expensive system to implement. The pros to ABC seemed to outweigh the cons. ABC allowed Super Bakery to track profitability of each individual customer and track the performance of the outsourced contractors. Management was able to identify that the key cost driver was not the dollar amount of each order but the
(Introduction) –
What strategies did the management of Super Bakery, Inc. use?
Installation of the Activity-Based Costing System
Super Bakery was formed in the 1980’s during a time when the barrier to entry into the baked goods industry was limited. They started the company using the industry’s standards and following them very strictly. The first four years of Super Bakery were not profitable and management knew they had to make changes so the company could succeed. They first changed their customer base and focused on school cafeterias. They had to make a unique product that would be approved by the USDA (Davis and Darling, 1996). The master chef created a donut recipe that surpassed USDA standards and the company was able to break into the institutionalized food market. Super Bakery also refrigerated and shipped their products nationally. This provided them a competitive advantage over their competitors. As a virtual corporation the decision to contract major parts of the company to other business reduced their fixed overhead and gained very high return on equity and net assets. With all of these changes Super Bakery management still found inefficiencies with the amount of control they had over the costing of the outsourced parts of the company. They chose to implement an activity based costing system to figure out where the improvements could be made. As opposed to a normal ABC system, they used their database to assign costs to specific customers and to their outsourced contractors provided service to the customers. The cons for the ABC were the matrix design of figuring out specific cost drivers, it also was an expensive system to implement. The pros to ABC seemed to outweigh the cons. ABC allowed Super Bakery to track profitability of each individual customer and track the performance of the outsourced contractors. Management was able to identify that the key cost driver was not the dollar amount of each order but the
References: (please add your references and have your part cited correctly) 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 Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009). Accounting Tools for Business Decision Making (3rd ed.). Hoboken, NJ: John Wiley & Sons Inc. BYP17-5 In our Feature Story about Super Bakery, Inc., we described a virtual corporation as one that consists of a core unit that is supported by a network of outsourced activities. A virtual corporation minimizes investment in human resources, fixed assets, and working capital. The application of ABC to Super Bakery, Inc. is described in an article titled “ABC in a Virtual Corporation” by Tom Davis and Bruce Darling, in the October 1996 issue of Management Accounting