Super Bakery, Inc. created in1990 by former Pittsburgh Steelers' running back Franco Harris is a nationwide supplier of mineral, vitamin, and protein enriched doughnuts and other baked goods to the institutional food market, primarily school systems. Super Bakery is a virtual corporation, in which only the core, strategic functions of the business are performed inside the company. The remaining activities - selling, warehousing, and shipping are outsourced to a network of external companies.
Super Bakery draws these cooperating companies together and organizes the work flow. The goal is to add maximum value to the company while making the minimum investment in permanent staff, fixed assets, and working capital. The results are notable: Sales have grown at an average annual rate of approximately 20% during most of its existence.
One of the challenges has been to control the cost of the outsourced activities. Management suspected a wide variation in the cost of serving customers in different parts of the country. Yet as traditional costing methods were spreading costs over the entire customer's base. Each customer's order appeared to cost the same amount to complete. In actuality, orders with high profit margins were subsidizing orders with low profit margins. Super Bakery desired a system that would more accurately assign the costs of each order. With such a system, pricing could be improved.
The company looked at and eventually changed to a system that could identify the costs associated with the activities performed in the business -manufacturing, sales, warehousing, and shipping. The new activity-based costing system showed that the costs and profit margins on each sale vary significantly. Super Bakery is not able to track the profitability of each customer account and the performance of outsourced activities. This doughnut maker, as a result, even knows the cost of the doughnut holes.
Instructions
Assume you are the controller of a virtual corporation. Using the article as a basis for your communication, write a summary that answers the following questions.
1. What unique strategies and tactics did Super Bakery's management implement that caused sales to take off and continue to grow at an average rate of 20%?
2. Why did Super Bakery's management feel that it was necessary to install an Activity-Based Costing (ABC) system?
3. What is the main difference between Super Baker's ABC system and other manufacturer's ABC system?