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3745- activity analysis

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Activity analysis

The cost of system support department (SS) department (and other service departments) of Clark paper products inc. have always been charged to the three business divisions of management, lumber products and paper products) based on the number of employees in each division this measure is easy to obtain and updated and until recently none of the divisions had complained about the charges the paper products division has recently automated many of its operations and has reduced the number of it?s employees at the same time ,however to monitor its new process paper products have increased its requests for various reports provided by the SS department cost passed on activity analysis of possible cost drivers cost analyst have suggested using the number of reports prepared as means of charging for SS costs and have gathered the following information

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1) The "number of employees" cost driver can be reliable in labour-intensive operations or in situations where the main input is labour count. An example of this is call-centers, where the main costs are derived from the number of phone operators. However, when operations become automated and the need for labour subsides, the number of employees or even labour cost become less accurate candidates for cost drivers. In our situation, the number of prepared reports becomes a more reliable measure since system support (SS) depends more on reports than on the number of employees. Table 1 (attached) ...

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