Reference no: EM133400010

My initial thought is how did their accountant not notice something was off? I am thinking they figured out how to write their luxury trips, and fancy cars off as business expenses. They must've used all their fraudulent business expenses to claim a loss. It doesn't add up because a bakery on average does not pull in that much cash.

Process costing was the best way to uncover this, considering their materials, operations costing, and unit costs. According to the textbook, a Process Cost System; "uses multiple work in process accounts, summarizes costs in a production cost report for each department, totals cost report for each department, and unit cost is calculated by taking the total manufacturing costs for the period divided by the equivalent units produced during the period." I can see how they were then caught after that. Laying out each department and seeing a substantial amount of money that does NOT add up is a clear give away. Process Costing is really valuable to businesses, doing a Production Cost Report is important here because not only is it a way for management to understand activities going on in each department, but also shows the production quantity and cost data related to each department. If it was a larger business, I don't know if they'd really get away with it, but maybe their numbers would make a little more sense compared to Collin Street Bakery's numbers.

I think that all businesses should be doing a process cost system. It can better help the company and management understand the most efficient way to run their business, and not let people get away with MILLIONS in fraud and embezzlement.