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Cost drivers

Company A produces 3 products. Company A uses labor costs as a cost driver for support costs. Direct labor is estimated at $20 per hour. Products A & B require 20 hours of direct labor. Support cost is 2x the direct labor cost. Company A recently installed a computer integrated manufacturing system. Due to this change, Company A's accounts believe that the number of components is better cost driver for support costs. Cost per component is estimated at $80 per component, products a & b use 3 and 4 components, compute the following:

A) the support cost allocated to product a, if direct labor cost is used as the cost driver
B) the support cost allocated to product b, if direct labor cost is used as the cost driver
C) the support cost allocated to product a, if number of components is the cost driver
D) the support cost allocated to product b, if the number of components is the cost driver

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A) the support cost allocated to product a, if direct labor cost is used as the cost driver ...

Solution Summary

Cost drivers are examined.

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