Krispy Kreme: Costing Methods & Factory Overhead

School: Southern New Hampshire University - Course: ACC 202 Q2580 - Subject: Accounting

Brittany Tarto ACC-202 March 16, 2023 Krispy Kreme Company Overview: Krispy Kreme is a doughnut shop business that began in 1937 with a chef from New Orleans. The first location was in North Carolina and has since expanded to over 700 stores worldwide. (History, n.d.). Selling over 20 different flavors and over 20 million doughnuts per day, it is a popular pastry and a thriving business. (Insider, 2018).The nature of this company's operations would be manufacturing, as it creates the finished product of doughnuts from raw materials. (Warren & Taylor, 2020). Costing Methods: A Job Order Cost System can be used for manufacturing businesses by assigning and recording the costs of each job. A job in this context means each batch of products that are manufactured. This method is ideal for manufacturers of custom goods or bundles of the same product. Another costing method is the Process Cost System, which separates costs and allocated them to each specific department of a manufacturer.Companies that produce goods that are almost identical while using a process that is uninterrupted would benefit most from this method. (Warren & Taylor, 2020).For Krisy Kreme, their doughnuts are indistinguishable from each other and use a continuous process, so they should use the Process Cost System. The Job Order Cost System would not make sense because each batch of doughnuts made should not be any different from the rest besides the time it was made, so there would be no value in determining the different costs of each identical batch, as these numbers would be almost always the same.

The Process Cost System, however, would break down costs by department to determine if each is running efficiently or not by recording the Cost of Goods for each made up of direct materials, direct labor, and overhead. This makes sense for Krisy Kreme because their departments would most likely include the Doughmaking Department, Shaping Department, Frying Department, Glazing Department, and Toppings Department.Each department can see how much its own costs are and if there's any specific department that needs improvement. Factory Overhead: Indirect and manufacturing overhead costs are basically any costs that contribute to the manufacturing process that are not direct materials or direct labor. This would include utilities, repairs and maintenance, insurance, and depreciation on equipment. All these costs are incurred in the process of manufacturing, but cannot be attributed to a specific job or department. For Krispy Kreme, their manufacturing overhead costs would include utilities such as electricity, gas, and water. The equipment that is used, from the beginning of making the dough to the machines used to glaze and top the doughnuts, would have repair costs as well as depreciation costs that would be considered manufacturing overhead costs. In addition, insurance, property taxes, and any other tools and supplies that are used to make the doughnuts are examples of their manufacturing overhead. (Warren & Taylor, 2020).