Super bakery
Bakery is a virtual company, in this company many things go on, but it only deals with the core functions of the industry when the other portions of the company are contracted out. Since the bakery Is a leader when It comes to the Institutional baked goods market, the business may have ongoing concerns maintaining the quality of its goods and services. The Super Bakery management department agree to put into play the BBC plan (activity based costing plan).
Super Bakery has an extra challenge when putting this operation system to work by doing this plan. The reason for this Is due to the bulk of the functions being contracted out, but the plan is meant to help the company keep control over the contracted out functions. The strategy used by Super Bakery was to Identify an undeserved market and compete in that market. They decided to choose the school system within the institutional food market. The difficulties with this market are government requirements and funding shortfalls.
Super Bakery developed a high nutrient baked good that replaced the high fat donuts because it meets the USDA recommendations or the food that was to be served to the children. This market was also restricted by high costs associated with freshly produced baked goods. Super Bakery went against the market norm and began refrigerating their product. Through the use of vacuum sealing they are able to distribute the product nationally without having to have bakeries in every city, so they made their market anywhere in the US without adding costs.
Since Super Bakery was catering to the school systems, this gave them additional access to cheaper and fresher ingredients. This was due to the different overspent supported commodities which helped their distributors reduce costs by Implementing just In time delivery. Probably one of the most remarkable strategies used by Super Bakery was the outsourcing of the major operations of the bakery business. Super Bakery oversees the production and delivery of their products, but contract out the major functions such as manufacturing, selling and distribution of their product.
In this sense, they are a virtual corporation that oversees the process but doesn’t get bakers flour under their fingernails. The managers of Super Bakery sought out a new method for assigning costs because their old traditional system did not accurately reflect the differences In real cost structure. Super Bakery’s management thought it was necessary to install an BBC system, as an effective way to more efficiently manage the company activities. While attempting to add great value, the business managers desire to make the least investment in fixed assets, staff, and working capital.
Managers inside Super Bakery believe installing an activity-based system was required because the company understood that the company benefited by outsourcing some activities, but also realized the need to control and coordinate these services. The company’s ability to control the cost of the outsourced businesses was a big challenge that leads to manager’s decision to implement activity-based cost system. The management’s reasoning works because an activity-based cost system will enable Super Bakery to create a specific breakdown of the costs of customer’s orders.
Also, the BBC system prevents the distortion that may happen with traditional overhead cost allocation. Management suspects a wide fluctuation in the cost of serving customers throughout the country. A new improved pricing system was required due to orders with low profits margins being subsidized by orders with high profit margins. The key requirement of the new system would enable the company to more accurately assign costs to each customer’s order. The BBC system is beneficial to the company because it can accurately identify to managers which areas are more profitable and assist in strategic product planning.
The internal users will be able to aka better overall financial decisions that will have a positive effect throughout the company. Managers know that the Super Bakery business would certainly benefit from the installation of the BBC system. This reasoning works because in an activity-based costs system costs are tracked by individual accounts according to performances of outsourced activities and presents detailed data concerning workflow cost. The system assigns overhead costs directly to the actual activity cost pool and uses multiple bases.
Management’s plan involves implementing an effective activity-based costing system capable of thoroughly analyzing the company’s many activities. Super Bakery adapted the BBC system over the old traditional system because they realized the advantages in accurately identifying costs(internally and outsourced) associated with the business activities. The managers of Super Bakery found it necessary to install an BBC system that has now proven to be valuable in tracking profitability of individual accounts and outsourced performance. There are two different cost systems that Super Bakery could choose to use.
A Job order cost system is one that takes a specific Job into account and tracks all the costs for that one Job and then totals the costs together. The other system is a process order cost system which is used when a company produces a similar product and tracks the costs by department as a whole. The cost system that would be more suitable for Super Bakery would be a process order cost system. Since Super Bakery is a producer of similar baked goods, specifically doughnuts, and they outsource their entire production line, a cost system would make the most sense for taking into count the many different cost centers.
A process cost system also allow for multiple work in process accounts but Super Bakery has contracts and orders placed by vendors across the United States. With using a process cost system, Super Bakery would be able to keep track of multiple orders and contracts at the same time. Another aspect of a process cost system that Super Bakery can take advantage of is that costs are assigned by department. Super Bakery would be able to track the costs for each vendor and count it as a department.
A process order cost system would be the best option for Super Bakery because it allows for flexibility and the Super Bakery did a great Job figuring out the best cost system for their company. The cost system is activity based cost system that lets the company take full advantage of productivity, and this leaves room to provide each client with extraordinary care personally. The virtual corporation is able to monitor expenses with a minimal in-house staff while controlling outside vendor costs without sacrificing product and customer service excellence.
