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Cost Drivers and Activity-based Costing

Andrea Boss, Inc. manufactures five models of kitchen appliances at its Vista plant.

The company is installing activity-based costing and has identified the following activities performed at its Vista plant.

1. Designing new models.
2. Purchasing raw materials and parts.
3. Receiving and inspecting raw materials and parts.
4. Storing and managing inventory.
5. Interviewing and hiring new personnel.
6. Machine forming sheet steel into appliance parts.
7. Manually assembling parts into appliances.
8. Maintaining and repairing machinery and equipment.
9. Insuring all tangible fixed assets.
10. Supervising production.
11. Training all employees of the company.
12. Painting and packaging finished appliances.

Having analyzed its Vista plant operations for purposes of installing activity-based costing, Andrea Boss, Inc. identified its activity cost centers. It now needs to identify relevant activity cost drivers in order to assign overhead costs to its products.

Instructions

Using the activities listed above, identify for each activity one or more cost drivers that might be used to assign overhead to Andrea Boss's five products.

Solution Preview

Please see response attached, which is also presented below. I hope this helps and take care.

RESPONSE:

Activity based

Assign activity costs to outputs?assign activity costs to outputs using activity drivers. Activity drivers assign activity costs to outputs based on individual outputs' consumption or demand for activities. For example, a driver may be the number of times an activity is performed (transaction driver) or the length of time an activity is performed (duration driver). http://www.dod.mil/comptroller/icenter/learn/abcosting.htm

Cost Drivers

Cost drivers are the factors that cause you to incur expenses. Cost drivers are triggers, or those things, which cause an activity to be performed or an expense to be incurred. To illustrate, consider the example activity of "Determine Time Phased Material Requirements." For this example, you would need to recalculate those requirements whenever the production schedule changes. Thus, ...

Solution Summary

This solutions explains activity-based costing and identifies one or more cost drivers per listed business activity that might be used to assign overhead to Andrea Boss's five products. This solution is 576 words.

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