A Report On Cambden Cakes Essay

A Report On Cambden Cakes Essay

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Cambden Cakes is a private company run by Ronald, which manufactures and distributes a variety of cakes and pastry products to supermarkets throughout Victoria, Australia. It initially produced a small range of high quantity products when first established in 1957. This report analyses the current costing system and a refined costing system for Cambden Cakes.
The existing costing system, also known as conventional costing system, which costs are allocated to one single cost driver. It may cause inappropriate cost allocation. The recommended costing system is activity-based costing (ABC) system. An ABC system, which activities associated with production are determined, and costs are allocated to products based on individual products ' consumption or demand for each activity. Using ABC system, it involves higher cost and complex steps than using the traditional costing system. The limitations of inappropriate cost allocation will lead to overcosted and undercosted a product which will significantly affect the profitability of the company.
From this report, it is recommended Cambden Cakes using ABC system instead traditional system to improve cost utilization and maximise the profitability of the company.

1.0 INTRODUCTION
A refined costing system can reduce the use of board average for assigning the cost of resources to cost objects and provide better measurement of the cost of indirect resources used by different cost objects. There are three principal reasons for the demand for refinements to the costing system are increase in product diversity, increase in indirect costs and competition in product markets.
Cambden Cakes is a private company which manufactures and distributes a variety of cakes and pastry products to superm...


... middle of paper ...


...different cost category. It only recognises the amount of produced as the only driver.
However, the other resource drivers also play an indispensable role in the manufacture process. As a result, the consequences of running current costing system to Cambden Cakes are inaccurate price of products, incorrect decision about products’ volumes, and unreasonable wages for employees. As the name, ABC system, suggests activity based on costing is a system, which focuses on activities on the basis of cost objects and uses the costs of these activities as building blocks for compiling the costs of other cost objects. 
In a nutshell, the use of an activity based on costing system can help Cambden Cakes to develop a way to analyse and justify manufacturing cycle-time improvements and increase the efficiency in the production and ultimately boost its revenue in effective way.

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