Cost System
Some of Identify your recommended costing system, including your rationale, to management
Recommended costing system
My recommendation would be for Super Bakery Inc. to use the ABC ( activity-based costing system).
Rationale, to management My rationale is as follow: Super Bakery Inc. will benefit from implementing activity-based costing system because, “in activity-based costing system, activity is any event, action, transaction, or work sequence that incurs cost when producing a product or providing a service” (Kimmel, 2009, pg. 867). Very important detailed information on how these costs are processed through the company’s work flow. The activity-based costing system shows the company management all the deficiencies, where cost improvements are needed, and where prices need to be increase for future production or location planning.
The other reasons that activity-based costing can be used are that these are variable costs. Under variable costing, direct materials, direct labor, and variable manufacturing overhead costs are considered product costs. Organizations “use the cost-volume-profit format to prepare their variable costing income tax statement” (Kimmel, 2013, pg. 867). Super Bakery Inc. management has noticed that “orders with high margins were subsidizing orders with low margins” (Kimmel, 2009, pg. 867). The company decision to implement the activity-based costing system (ABC) will allow the management team to show all costs produced based on each activity performed instead of the job that was performed.
Activity-based costing system is the best fit because of Super Baker Inc.’s virtual business nature; it is also the most accurate tool for allocating costs than the more traditional costing system. The implementation of the activity-based system has contributed to the company growth. Since that company started in 1990, “its traditional costing methods were spreading costs over the entire customer base” (Kimmel, 2009, pg. 267).
Reference
Recommended costing system
My recommendation would be for Super Bakery Inc. to use the ABC ( activity-based costing system).
Rationale, to management My rationale is as follow: Super Bakery Inc. will benefit from implementing activity-based costing system because, “in activity-based costing system, activity is any event, action, transaction, or work sequence that incurs cost when producing a product or providing a service” (Kimmel, 2009, pg. 867). Very important detailed information on how these costs are processed through the company’s work flow. The activity-based costing system shows the company management all the deficiencies, where cost improvements are needed, and where prices need to be increase for future production or location planning.
The other reasons that activity-based costing can be used are that these are variable costs. Under variable costing, direct materials, direct labor, and variable manufacturing overhead costs are considered product costs. Organizations “use the cost-volume-profit format to prepare their variable costing income tax statement” (Kimmel, 2013, pg. 867). Super Bakery Inc. management has noticed that “orders with high margins were subsidizing orders with low margins” (Kimmel, 2009, pg. 867). The company decision to implement the activity-based costing system (ABC) will allow the management team to show all costs produced based on each activity performed instead of the job that was performed.
Activity-based costing system is the best fit because of Super Baker Inc.’s virtual business nature; it is also the most accurate tool for allocating costs than the more traditional costing system. The implementation of the activity-based system has contributed to the company growth. Since that company started in 1990, “its traditional costing methods were spreading costs over the entire customer base” (Kimmel, 2009, pg. 267).
Reference