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Cost Drivers - Essay Example

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Summary
Activities are cost objectives that cause costs in producing goods and services as well as providing the support services that are required for that production. Resources on the other hand are required to perform the activities (Hansen et al. 2011).
Activities for the division…
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COST DRIVERS Activities are cost objectives that cause costs in producing goods and services as well as providing the support services that are required for that production. Resources on the other hand are required to perform the activities (Hansen et al. 2011).
Activities for the division includes setting up machines, production of product lines, supporting machine during production process, packaging, providing machine maintenance, receiving and responding to customer queries, employee relations, supervision of machine operators as well as the maintenance mechanics and employee file maintenance.
Consequently, resources for the division include management (supervisors), building, energy or electric power, production management, labour, equipment, materials, and supplies.
Finally, cost drivers includes hours of time, number of employees, number of setups, number of wheel, number of enquiries, number of products produced, number of machines maintained, and number of hours of supervision.
Activities
Resources
Cost drivers
Setting up machines
Time
Number of setups
Production of product lines
Production management, materials, energy, labour, equipment
Number of products produced
Supporting machine during production process
Labour
Hours of time
Packaging
Supplies
Number of wheels
Providing machine maintenance
Labour
Number of machines maintained
Receiving and responding to customer queries
Management (supervisors)
Number of enquiries
Employee relations
Management (supervisors)
Number of employees
Supervision of machine operators as well as the maintenance mechanics
Management (supervisors)
Number of hours of supervision
Employee file maintenance
Management (supervisors)
Number of employees
Cost behaviour normally relate to various activities as well as the consumption of resources ((Hansen et al. 2009). Such resources have costs which are either fixed and do not vary directly with resource usage in the short run or variable and varies in direct proportion to the resource consumption. Activities usually consume resources and the costs of such resources often follow various behavioural patterns (Needles et al. 2010).
Since, the supervisors spend an equal amount of time with each employee they supervise, the costs associated with it are fixed, and they do not vary directly with resource usage. Since the building is allocated based on square footage, the costs are variable. There is a direct correlation between amount of space used and the rent. There is also a direct correlation between the Energy or electric power consumed and the number of units produced (Needles et al. 2010).
In terms of labour, the costs are variable as they change in direct proportion to the number of units produced. The cost of equipment is fixed and does not vary directly to the units produced. The cost of materials varies in direct proportion to the number of units produced. There is an indirect relationship between amount of supplies and production time. The costs therefore vary in direct proportion to the resource consumption ((Hansen et al. 2011).
References
Hansen, D. R., & Mowen, M. M. (2011). Cornerstones of cost accounting. Mason, OH: South-Western, Cengage Learning.
Hansen, D. R., Mowen, M. M., & Guan, L. (2009). Cost management: Accounting and control. Mason, Ohio: South-Western.
Needles, B. E., Powers, M., & Crosson, S. V. (2010). Financial and managerial accounting. Mason, OH: South-Western Cengage Learning. Read More
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