2-28 Identifying Cost Drivers The following list identifies several potential co

Question

2-28 Identifying Cost Drivers The following list identifies several potential cost drivers for a manufacturing company that makes eight products. The company uses a JIT production system so it stores finished products for a very limited time. The eight products vary substantially in size from small (plastic casings for pens) to large (plastic casings for truck instrument panels). The company uses order-processing labor to process all orders from customers - Number of setups - Setup time - Square feet - Cubic feet - Cubic feet weeks Number of orders Number or order line items For each of the following situations (activity and related resource), identify the best cost driver from the list and briefly justify your choice 1. To produce a product, production mechanics must set up machinery. It takes about the same time to set up for a production run regardless of the product being produced What is the best cost driver for the resources used during the setup activity? 2. Instead of the situation described in number 1, what driver should the company use for the setup activity if it takes longer to set up for complex products, such as the instrument panel casings, than for simple products, suclh as pen casings? 3. What driver should the company use for warehouse occupancy costs (depreciation and insurance)? The company uses the warehouse to store finished products 4. What driver should the company use for the warehouse occupancy costs if it did not use a JIT system (that is, the company maintains inventories), and upon inspection one of the products had a thick layer of dust on it?

Explanation / Answer

Option 1 : As each set up takes the same amount of time, number of set ups will be the cost driver.

Option 2: As longer set up times lead to consumption of more amount of time than usual, Set up time, will best justify as the cost driver.

Option 3: A standard cost dirver Cubic Feet, should be used since , in the wrehouse all the products are stored for almost same duration.

Option 4: Some Sort of products take more storage time than others and a bifurcation of this should be made and accounted. Hence Cubic Feet Weeks is the best suitable cost driver.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.