Cost Drivers For Product Costing Decisions
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This solution explains product costing decisions. The sources used are also included in the solution.
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Cost drivers can be used by managers when reviewing product costing decisions. The cost drivers allow the managers to identify those activities that are affecting several other costs. For example, an activity is running a lathe machine for thirty minutes is an activity. The cost driver is lathe machine operating hours; this drives the cost of labor, maintenance, and power consumption of running the lathe machining activity (a). When reviewing product costing decisions the cost driver namely the operating hours of the lathe machine allows the manager to calculate the actual cost of making a product and pricing it appropriately. When the manager reviews the cost driver, he includes in the cost of labor, cost of maintenance, and power consumption of running the lathe machine. This gives the manager a more realistic cost. Further, ...
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