Part A

The organization that we have choose for this task is the King’s Confectionery Sdn. Bhd.
(King’s Bakery). This company is a confectionery Retail Industry that sell many type of cake
such as vegetarian cake, delectable cake, cream cake, muffin, bread and many more. Other
than that, King’s Bakery also provide specific services like for the Fullmoon collect, tartlet
collect an bridal collection of cake. We have visited one of the King’s outlet located inside
Giant Nilai on 7th Jun 2017.
King’s Bakery began its journey of growth with a beginning of only one outlet in 1973.
On that time, they produced cakes which make it faster for everybody who wants to get a
cake for birthday gathering or any kind of festival such as graduation, wedding celebrations
in Malaysia household. Basically, King’s Bakery is a retailed business. King's Confectionery
was formed into a legal corporation in 1993. Back then in 1996, their product have been
certified HALAL by Jabatan Kemajuan Islam. The organization attract many people
inconvience of the certified HALAL lable. Their vision is to serve an excellent bakery products
to our multicultural society. Now, King's Confectionery run in more than 80 retail stores
extend across the Peninsula of Malaysia, from Alor Setar to Johor Baharu, and satisfy more
than 10 million customers a year. They have always looking forward to challenge themselves
to create a new product to satisfy their customer.
Their product range broaded to drinks, brunch set, sandwiches delectable buns,
breads, loafs, pastries, swissrolls, muffins, cookies, desserts with each goodness taste. Back
in the 90’s, their signature product is Portuguese egg tarts that became the “talk-of-the-town”.
Their customer created long line queues in all their outlets just to get the freshly baked hot
Portuking Egg Tart. King's Confectionery already commence on the Healthy & Nutritional
Lifestyle mode producing products in low sugar, added calcium & vitamins and high fiber to
give their customers the best quality of food.
King’s Confectionery also provide membership card for their loyal customer. The use
of the membership card is, customer will get 10% discount on every purchase at King’s
Confectioney product, 30% discount on King’s Member Day Sale and 40% discount on any
birthday cake during card holder’s Birthday Month. Customer can apply the card through
their website (online registration) and choose the nearest outlet to collect their card after 14
days. It will cost RM5.60 for each application. Signing up for membership produced their
outcome by maximising the customer.

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PART B

Through our observation King’s Bakery has its own classification of cost, which can be
separate into indirect cost and direct cost. Singh (2010, 45) stated that cost can be identified
with a department process or product are termed as traceable costs. Traceable cost is
assigning of direct cost to the chosen cost object. Direct cost can be divide into two
categories that are, direct labour and direct material.

Direct labours are costs of the gross wages of employees that directly produce the products.
Direct workers are the one that manufacture the brands. Workers can be classifying into two
that are wages and payroll workers. For Example, payroll workers are paid in a monthly basis
and have a fixed amount of salary, whereas workers that are paid in wages are depending
on the productivity. Whereas direct materials are those materials and goods that are used
during the making of the product, which are classify with that product. Items labelled as direct
material are commonly listed in the bill of goods data for a brand. (Bragg, 2011)

Direct Material Direct Labour

 Yeast  Baker
 Flour  Part Timers
 Eggs  Cashier
 Butter

 Sugar

 Cheese

King’s Bakery Indirect Cost

1. Indirect Cost

Indirect cost can be clear up as costs that are identified with the specific cost item however
cannot be followed to it in practical way. Indirect costs are apportioned to be cost object by
utilizing a cost distribution technique. The reasons for cost allocation are to confirm costs or
count repayment and to measure pay and resources for meeting outside administrative and
legitimate reporting commitment.

Therefore, items such as decoration and baking spray will be considered as indirect cost for
King’s Bakery. For example, the employees of King’s bakery wouldn’t know the exact amount
of spray did they use to bake the muffins and breads. It also includes decorations such as
chocolate chips, sprinkles, strawberries and many more. Indirect cost can be dividing into
two categories manufacturing overhead and non-manufacturing overhead cost.

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 2. Cost Behaviour

Through our observation in King’s bakery, we noticed that there is cost of behaviour in the
outlet. Without cost of behaviour, decision making will be harder to make for cost and
revenue based on different activity seasons. (Jhonie, 2013, 2) Types of cost behaviour
patterns can be separate into two types variable and fixed. The total variable cost
proportional to activity level is within the applicable range. Over wide ranges of activity cost
per unit maintains the same. Total fixed cost maintains the same even if the activity level
changes within the applicable range. Activity levels go up as fixed cost per unit goes down.

In King’s Bakery they are renting it from Giant. This is identified as a fixed cost. If the shop is
being charged RM2000 of rental fee a month, it will be fixed throughout the month no matter
what revenue did they earn. If the following month, King’s Bakery were to make a sales of
RM1500 the rental will still be the same thus making loss profit. The rental fee will always
maintain the same through whatever sales that they made.

Whereas, utilities that is being used to make production of bakeries are considered as
variable cost based on productivities of products. If King’s Bakery has an order for a private
event to make two-hundred cupcakes with two different types of flavour the ingredient cost to
make the cupcakes will increase and the utilities such as electricity will increase as well
because of the productivity of the machinery becomes more and uses more electricity.

3. Manufacturing O.H Cost

Manufacturing overhead consist of direct material and direct labour. Besides, that indirect
material and indirect labour such as rents of shop and bakery utilities and depreciation of
machinery is consider as manufacturing overhead. Manufacturing overhead is production of
cost that is shared and shared services. Manufacturing overhead cannot be followed
specifically to the product.

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 4. Period and Production Cost

Moreover, Product costs are the cost that regarded as purchased and cost that used to
create product and it also called as inventory cost. Deliver a service to customer also can be
considered as product costs. In this manner, product costs of this bakery are the raw
material. The raw materials of this bakery are the flour, yeast and sugar.

Through our examination of the King's Bakery, We have to decide the period cost and the
product cost. Through our understanding, period cost is cost that cannot be market into
product expenses and stock valuation proposes. The cost of merchandise sold is viewed as
item cost and those organization and offering and dissemination costs are considered as
period cost.

Thus, King's Bakery’s period cost division are the advertising department. The period
expenses of the advertising marketing are marketing costs and commissions. The marketing
costs are the notices that advance their items. What's more, depreciation cost is also
additionally one of the period costs. For illustrations, machines that helping them to make
items, for example, stove, blender and cooler and so on.

In addition, Item expenses are the cost that viewed as acquired and cost that used to make
item and it additionally called as inventory cost. There are other services such as McDonald
delivery can be listed as product cost. For King’s Bakery’s case will be the ingredient such as
butter, sugar, yeast.

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PART C
According to our observation from King’s Bakery, the Company were using some ways to
control its operating cost. Some ways they were using such as membership cards, storage
fridge, seasonal product and discount, and suppliers that we could like to elaborate.
Regarding to all these ways, it could help King’s Bakery Company to control their operating
cost.

1. Membership Cards

King’s Bakery has their own membership card system which can be used in any outlets of
the bakery including one of them in Giant, Nilai. Every time the customer had choose their
bakeries and ready to make payment at the cashier counter, the cashiers will ask the
customer for their membership card in order to give discount based on King’s Confectionery
products. Moreover, by doing this system, it will help in collecting the data based on what
member have purchase and make stock ordering according to the data collected from the
card. Furthermore, each time the customer swipe their card, the system will accepted the
data regarding to the customer preference in the product. By doing this system, King’s
Bakery will know which is the popular product and which is the less products produced by
them and they can make the adjustment for their production line. They can reduce the
production of the less popular products. Following this system, it not only will help the
company to save the cost of wastage of no sold out product and it can be used as a data in
the list of the popularity of each products, and based on this it will help to low the risk of the
overstock and understock of the products. Besides, it also can help the company to reduce
the holding cost and the ordering cost. Holding cost were such as the insurance costs, risk of
cash tired up, storage cost, material handling cost and absolute of stocks meanwhile the
ordering cost were clerical cost of preparing the purchase order, received the deliveries and
paying the payment. All these cost will be reduce with the collected data by the membership
card.
Furthermore, when customers want to apply the membership card, customer can apply the
membership card via online registration. They can collect their card by the nearest outlet of
the company. Besides, the other way of applying the membership card is they can do the
registration on the spot at the bakery, instead of sending the card to the customers’ house,
the customer can come to collect the card at the place they register the card and can pay the
card fee directly at the counter. By doing this way, King’s Bakery able to reduce delivery
costs and postage cost in sending the membership card to each household.
Moreover, customer who had already applied and get the card, they can enjoy all kind of
benefits that were promoting by the bakery. However, they need to only renew the
membership card once a year and can used it until the dateline of the renewable card. There
are several benefits, which can attract the customer in applying the membership card such
as discount on the bakery products, a free birthday cake discount, and any kind of voucher.
Furthermore, this is one of the way that used by King’s Bakery to attract more customer,
increase the sales, and profits for the company by giving the promotion on membership
cards.

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Besides, every industry and company need to conduct a survey in order to research on
target market, by doing the survey it help the company to identify the market that they aim to
it. In order to conduct the survey, they will need to carry out research and development to get
the data regarding the market but it does not apply in King’s Bakery. King’s bakery able to
collect data based on the membership card. King’s Bakery makes use of technology to help
in collection of data. Though the membership card, every time customer’s membership card
swipe trough the cashier counter, the system will indicate the detail of customer and
purchase item will be recorded as data. From there, King’s Bakery able to analyse the
customer buying pattern, product popularity and use it to invent on new bakery item and sell
it to the market. The membership card also have to influent to the customer when purchase
item in King’s Bakery, there will be a discount to the member while non-member will be pay
full rate will help boast the sale and retain customer.

2. Seasonal Products And Discount

King’s Bakery had done some seasonal products on some special time and days such as
Valentine’s Day, Christmas, and Mooncake Festival. King’s Bakery produce those seasonal
product as it convenience for the customer who use it as a gift. It also can be used for
celebration of some event which can attract customer to purchase it. With these seasonal
products, it helps King’s Bakery to earn more sales. Besides, King’s Bakery also does some
seasonal discount on specific time such as Happy Hour. The buying time this started at
9.30pm onwards closing. The price will be only on specific products will be sell about 4
pieces for only Rm 6.00. Regarding to this system, the bakery can clear the product of that
day in order to prevent the wastage besides it is also one of the marketing strategy which
customer can come to buy the bread or whatever pastry product at that time. This indirectly
can increase the profit of the company sales moreover they can reduce the holding cost of
products and cut all of the cost of wastage. King’s Bakery has their own vision which is
served the quality bakery product to culture diversity society and they also have the culture
awareness of Malaysia culture. In order to fulfil the culture diversity they provide the product
which will be according to the situation of celebration or festival such as Fullmoon Packages.

3. Storage Fridge

King’s bakery had produced many product such as cake, bakery, pastry puff and different
kind of dessert. All these product need to keep inside the fridge in order to maintain the shelf
life and quality of the product. Throughout observation our observation, King’s Bakery in
Giant, Nilai have different type of storage fridge to keep the entire product. For example they
have beverage fridge mainly to store beverage and a storage electricity fee will be higher
because it need to operate for 24 hours to make sure the product is maintain in the good
condition. If King’s Bakery is not control the temperature of the fridge, it cause the total cost
higher and profit will be affected. So from what we observe, King’s Bakery had set a
temperature sensor in all fridges. The entire fridge had set to a certain temperature. Once the
temperature had hit the temperature set, the fridge will stop operating and maintain at the
temperature. Once the temperature decrease, the fridge will start operating again with this, it
helps King’s Bakery to reduce the electricity to reduce the electricity cost of the fridge.

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 4. Staff Recruitment

In addition, King’s Bakery also does the staff recruitment in order to maintain their sales and
profit for the company. Through our observation, King’s Bakery rather chooses the foreign
workers instead of local workers. This is because, the foreign workers are working based on
the contract where the company will pay them fixed in an amount in the period time based on
the contract stated meanwhile, for the local workers; they will have 3 to 6 month probation.
Moreover, after the probation if the local workers feel not happy with the working
environment they will immediately resign while for the foreign worker they cannot resign
according to the contract that already stated. Using this method of recruitment, the company
will not have the problems of higher turnover which can increase the cost of the company.
They also can reduce the time for train the new worker which can affect the sales and profit
for King’s Bakery. In King’s Bakery also, labour cost is one of the long term expense. A
labour cost cannot be reduced especially in a labour intensive company such as King’s
Bakery. Besides, King’ Bakery produce all of the productions based on the worker. If they
reduce labour costs which deduct the number of worker, they will face a big problem on high
turnover rate in term of not enough workers to produce the products. If this happen, King’s
Bakery will unable to reach the hit of their target for daily production.

5. Stock Valuation

Furthermore, for stock valuation according to our observation, King’s Bakery are using First
In First Out (FIFO) method in order to clear stock by selling out the stock to prevent wastage
of ingredient and minimize the loss of the sales. In FIFO method, the items which is produce
first will be sell out first before the second batch of the product is produced. So King’s Bakery
will not have a problem of over produced of every king of products if they using the FIFO
method. As example, when one of the products is sold out, the production line can produce
the product with standard quantity and sold the product by using FIFO method. It will not
cause of wastages, overstock or even understock. Moreover, by using this method, it can
helps in higher ending of inventory value and lower cost and can produce higher sales.
Besides, King’s Bakery is one of the companies which is produce the perishable item.
Perishable item means that the good that have a shortest shelf lives such as cakes, tarts,
raw material, bread, and others. In order to sell out the entire daily fresh baked product,
King’s Bakery will started doing the promotion on Happy Hour which the customer can buy
the products in cheaper price. The reasons why they are doing this is because they can
avoid of doing wastages.

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CONCLUSION
In a nutshell, throughout our survey on King’s Bakery, the company had manage well in their
costing include direct and indirect costs. In this company also, their direct cost included direct
material and direct labour. Furthermore, for the indirect cost, it includes product and period
costs. Moreover, King’s Bakery also had managed well in their operating costs and had avoid
those avoidable costs such as advertising, utilities of production unit and packing cost.
Lastly, from our analyzation, King’s Bakery had done well in pull up their profit of every
month through their advertisement and promotion at specific date of any kind of festivals and
celebration.

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References
1. https://www.accountingtools.com/articles/what-are-direct-materials.html

2. https://www.slideshare.net/ranasingh0820/classification-of-cost-5766802

3. https://www.slideshare.net/jhoniejhoan/cost-behavior-analysis

4. King’s Confectionery Sdn Bhd : http://www.kings.com.my/