Costing Methods Essay

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Costing Methods Costing Methods Paper Super Bakery, Inc is a nationwide company that provides baked goods to the institutional food market. It is a virtual corporation that outsources selling, manufacturing, warehousing, and shipping. Although, Super Bakery has grown at an average rate of 20% a year, one of its biggest challenges has been to control the cost of outsourced activities. “Management suspected a wide variation in the cost of serving customers in different parts of the country” (Kimmel, Weygandt, & Kieso, 2009, p. 865). The traditional cost methods the company used assigned costs evenly to customers resulting in orders with high profit margins subsidizing orders with low profit margins (Kimmel, Weygandt, & Kieso, 2009). Determining the exact cost of a product or service is probably impossible; however, decision makers need accurate cost estimates to make informative decisions about costs. One of] most difficult pats of computing accurate cost is determining the appropriate amount of overhead to assign a product, service, or job (Kimmel, Weygandt, & Kieso, 2009). “Activity based costing (ABC) allocates overhead to multiple activity cost pools and then assigns the activity cost pools to products and services through cost drivers. In activity-based costing an activity is an event, action, transaction, or work sequence that incurs cost” (Kimmel, Weygandt, & Kieso, 2009, p. 867). The cost pool is the overhead cost associated with a certain activity and the cost driver is the activity that has a direct link with the resources used for that activity (Kimmel, Weygandt, & Kieso, 2009). ABC segregates overhead into various cost pools to provide more accurate cost information than traditional costing systems.

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