1

Week 3 - Apply: Percentage of Completion

Student Name
Institutional Affiliation
Course code
Instructor Name
Due date
 2

Introduction
After going through the company’s data and reviewing it as well as observing how

various critical processes are being carried out in this company, I have come up with three

recommendations that need to be addressed for the benefit of the company. They are as

follows:

Marketing the company

In today's business environment, where there is a lot of competition, any firm or

corporation should set aside an enough budget for marketing itself. This budget is used to pay

for advertisements on various social media platforms, as well as radio and television stations.

The main objectives of advertising are to inform, remind and persuade. Aside from

informing, advertisement aids in the creation of a brand, product/service awareness. It can

also be used to tell clients about a newly developed product. On the other hand, it aids in

persuading targeted customers about the company's goods and why they should choose them

over others in the market. Finally, it reminds the customer about the company's products

when he or she needs them. This aids in market expansion, which attracts new customers to

the firm. As a result, the company's revenue rises as more sales are made.

Reducing expenses

Profitability has always been determined by cost factors in every business. Any

business that wishes to achieve its goal of long-term profit must consider the cost of

production, as part of your expenses, and strive to keep it as low as possible. The company

should be manufacturing its products in the numbers that are required or that will be required

in the near future. On the other hand, the company should monitor and reduce the amount of

energy consumed in production, specifically electricity. It is yet another factor that might

cause production costs to skyrocket, which is why it is classified as an expense. This can be

accomplished by deploying production equipment that use minimal energy, perform

effectively, and produce high-quality results for the tasks for which they are intended. This

aids in raising the profit margin and, as a result, the company's profitability.

Embracing e-commerce

This is simply conducting all the business activities electronically on the internet. This

helps in removing the brokers who comes in between the business and its customers which

sometimes can be risky to the business. They sometimes they fail to meet the standards of the

services that need to be offered to the customers of which it’s the one that strengthen the

bonds between the business and its customers. With the availability of devices such as

laptops and smartphone as well as internet, online selling has become very convenient.

Compared to the traditional mode of selling products, online selling requires fewer staffs.

This reduces the cost of paying extra staffs. It also helps in tracking the habits of the

customers as well as their views, which can be inform of comments on the platform. This can

help in analyzing the data and knowing what they need and respond accordingly. This helps

to improve the business by allowing decision makers to access real-time data and readily

monitor customers to make relevant decisions that can help the company fulfill its goals, one

of which is profit making.

Why did company management think it was necessary to install an ABC system?

Do you agree with their reasoning? Explain your answer.

Due to the diverse nature of the services provided to various clients, the management

of the super bakery company recognized the significance of deploying the activity-based cost

system (ABC). According to the company's management, the cost of freight for a specific

customer was determined by the amount of the order as well as the distance to which the

goods was to be transported (Davis & Darling, 1996). Also, donut production costs were

relatively high for a firm in California compared to a company in New York, among other

variations. These variations resulted in the corporation incurring more costs as a result of
 4

distributing the costs of products and services over the whole client base. Furthermore, the

ABC system is appropriate for the company's business strategy. That is, they have divided

their process into divisions such as production, marketing, and so on. When working with

those segments, it is easy to break down the cost and apply it to different segments based on

the rate at which a particular product is produced.

I agree with their implementation of the system because ABC system method is

efficient compared to traditional methods it focuses more on the cost of the activities

involved producing a certain product. The indirect cost of a product is displayed alongside

the direct cost of the same product. Furthermore, the organization can track the cost flow

more efficiently and readily, allowing decision makers to make sound decisions and come up

with strategies to develop various departments involved for profit making. The cost of the

orders allows the company's management to determine whether the orders were good or bad.

It is common for orders with high profit margins to generate low profits on occasion, but it is

not usual for the same orders to make a loss.

Evaluate and recommend changes to the organization’s cost drivers. State how this

influences cost accounting results and business decision capabilities.

Cost drivers are the primary indicators of the company's expenses. These are the

activities that determine or have an impact on the price of something else. For example, the

amount of power consumed by equipment used in the manufacturing process for a specific

time period, such as a month, determines the company's electricity bill for that month ("Cost

drivers," 2021). This shows that for every activity that is taking place in the company, it

requires a resource which at the of the day is associated with a certain cost.

On the side of labor hours as one of the cost drivers, this is the time period in hour

that the employee work in a day. This determines how much money the firm owes the

employee. Because labor connects directly with the amount of production that occurs during
 5

that time period, hence determining yields, the company should balance those working hours

so as not to overwork the employees with the intention of getting high production yield. If

working eight hours a day produces the same yields and is as efficient as working twelve

hours a day, the working hours can be reduced to eight in order to minimize utility cost which

is driven by the working hours. If working eight hours a day generates the same yields and is

as efficient as working twelve hours a day, the working hours can be lowered to eight in order

to cut utility costs on the side of labor cost.

The time that a company use to run its machinery when producing its product is

another major cost driver. This correlate with the amount of power being consumed which

affect the electricity bill. Therefore, the company should put into consideration the amount of

time the machines are running. The management can also choose to use renewable energy,

such as solar power, which is becoming more popular these days. It is also a low-cost energy

source when compared to electricity.

Lastly, is the issue with returned goods. This is another cost driver in that, once a

customer returns good to the company, may be because the product was bad when it arrived,

the company is required to offer a refund to the customer. This make the company to incur a

loss. Therefore, management should constantly ensure that the products sold to clients are of

high quality and are handled carefully during shipment. This decreases consumer returns,

resulting in fewer refunds hence higher income.

Cost drivers determines the end result of cost accounting as well as decision making

in a business. If the cost of production exceeds the cost of sales (revenue), the business will

most likely fail. If the revenue exceeds the cost, it indicates that the company is

accomplishing its goal of making a profit. On the side of decision making, cost drivers play

an important role in helping decision makers in the company to do analysis of cost and
 6

knowing which cost will be assigned to determine the overall cost of production as well as

the revenue that is expected to be generated.

Is job order or process costing a viable option for the company. Why or why not?

Job order is beneficial to the super bakery company. Process costing, on the other

hand, is not best for the company because the company does not create a large volume of

items. The company is making special doughnuts in packets in response to an order that the

sales company has brought it. The reason why job orders work best for the organization is

because the costs are divided down into cost drivers and activity cost pools. This makes it

simple to monitor an order and guarantee that it is profitable in the long run based on its

costs. If an order will make a small or no profit, adjustment of cost can be made to guarantee

that, at the end of the day, the orders cover their costs while also generating profit for the

company.
 7

References

Corporate Finance Institute. (2020, January 30). Cost

driver. https://corporatefinanceinstitute.com/resources/knowledge/accounting/cost-

driver/

Cost accounting: Getting better information for making better decisions. (2020,

December 15). BerganKDV. https://www.bergankdv.com/resources/blog/cost-

accounting-getting-better-information-for-making-better-decisions/

Cost drivers. (2021, March 17).

WallStreetMojo. https://www.wallstreetmojo.com/cost-drivers/

Davis, T. R., & Darling, B. L. (1996). Update on super bakery, Inc. Organizational

Dynamics, 25(2), 86-87. https://doi.org/10.1016/s0090-2616(96)90028-5

How bakeries can align retail and e-Commerce sales strategies. (n.d.).

Bakingbusiness.com | Baking industry news and

insights. https://www.bakingbusiness.com/articles/49151-how-bakeries-can-align-

retail-and-e-commerce-sales-strategies

Why you should sell online: 7 benefits of ecommerce websites.

(n.d.). https://blog.jdrgroup.co.uk/digital-prosperity-blog/ecommerce-website-

benefits