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Activity-Based Costing at Super Bakery

Super Bakery Inc. was founded in 1990 by Franco Harris, a football player. It constitutes the typical example of a virtual corporation, an entity that has outsourced its non-core business functions to other players (Warren, 2011). Having been in the business of supplying baked doughnuts to school systems and public institutions across the United States, Super Bakery is mainly concerned with reducing the costs of their outsourcing activities so that they maintain a healthy profit margin (Kimmel, Weygandt, & Kiesko, 2009).

In this paper, we will answer three questions pertaining to the company’s implementation of an Activity-based Costing (ABC) model.

Strategies followed by Super Bakery

As an organization, Super Bakery has a bare minimal set-up. Most of its activities such as sales, transportation, warehousing and production are outsourced to third-party vendors. The company controls strategic planning and R&D activities with a Master Baker at the helm of affairs (Kimmel, Weygandt, & Kiesko, 2009). His job is to develop new products which are later converted into dry mixes that are made from market ingredients (Kimmel, Weygandt, & Kiesko, 2009).The final products are manufactured by independent businesses.

Other divisions in the company include regional sales offices in four cities, an advertising and an order department (Kimmel, Weygandt, & Kiesko, 2009). Also, there are independent sales brokers who may contract as much as 5% brokerage to guide sales activities across the country (Kimmel, Weygandt, & Kiesko, 2009). The ultimate objective of Super Bakery is to reduce overall costs in sales and operations through advanced outsourcing planning.

ABC System at Super Bakery

The management at Super Bakery opted for the ABC system because it needed to focus on its core area of expertise; of making good bakery products. This led to outsourcing of non-critical functions to other people and companies who are able to lend their finest expertise to several pre-defined roles.

To make the ABC system work, the company refers all book-keeping costs to individual customer accounts (Kimmel, Weygandt, & Kiesko, 2009). The other costs are derived from activity measures undertaken to add to profits Kimmel, Weygandt, & Kiesko, 2009). For instance, advertising costs are measured using the projected number of cases sold (Kimmel, Weygandt, & Kiesko, 2009).

Similary, costs for the order department are traced back to the number of orders placed (Kimmel, Weygandt, & Kiesko, 2009). For sales management, it is roughly equal to the time spent by the teams in individual territories (Kimmel, Weygandt, & Kiesko, 2009). The R&D team measures its costs by the number of hours spent in each product line (Kimmel, Weygandt, & Kiesko, 2009). The ultimate aim of the ABC system is to make each employee more accountable to the overall organizational aim of keeping costs low.

In my personal opinion, Super Bakery’s cost model is very efficient and pragmatic, although could prove difficult to manage as the organization grows in size. At that stage, the company would require in-house teams to manage various sales coordination efforts.

Alternative systems: job orders, process orders

Other alternative systems like job ordering and process ordering may work for Super Bakery if they find out a means to determine the precise cost per unit which are currently being borne by outsourced players. The profit margins would vary considerably and the company is now in the position to record every single dollar against the final sales results (Warren, 2011)


Super Bakery’s ABC model is an innovative exercise in cost-cutting and maintaining steady profits while transferring operational complexities to third party vendors. There is a lot to learn from their advanced book-keeping methodology for organizations that want to thrive in a recession economy. The learning motto here is as simple as this: good planning in advance can prove a great cost benefit to organizations.


Kimmel, P., Weygandt, J., & Kiesko, D. (2009). Accounting: Tools for Business Decision-making (3rd ed.). Hoboken, NJ: John Wiley & Sons.

Warren, C.S. (2011). Survey of Accounting (2nd ed.). Mason, OH: Cengage Learning.

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