Cost Drivers

apostrophize Drivers
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Up until this point we maintain cerebrate on how bells change with changes in proceeds or units sold.
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There are other “ be drivers” that whitethorn better describe the behavior of a approach than the output of the manufacturing process.
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Consider the following manufacturing process for worm traps (which I was involved in as an undergraduate.)
6
Cost Drivers
Most insect traps work because of Pheromones.
Each insect has a different Pheromone, therefore to make a particular type of insect trap, you wishing to mix different chemicals.
We can break up the intersection process into the following activities.
To make an insect trap you mustiness:
1.
Set up for mixing
2.
Mix chemicals
3.
Kiln chemicals
4.
Make the traps. 7
Cost Drivers
To crop up to mix 16 ounces to 1600 ounces of a pheromone for kilning takes 50 hours of wear down @ $20 per hour.
An individual Kiln can only handle up to 100 pounds of a pheromone, then a new kiln has to be setup.
Thus setup costs are fixed cost for up to 100 pounds of a pheromone.
So how much would it cost (in terms of labor dollars) to make 250 lbs of fruit fly pheromone?
8
Cost Drivers
What was your first inclination to do in calculating the cost of making the fruit fly pheromone?




What happens in be this harvest-home when we add layers to the production process like assembly, disposal, shipping, receiving?
ABC costing suggests that instead of tracking setup
costs per pound of pheromone, it makes pore mother wit to track set-up costs per batch kilned.
9
Breakeven Analysis
Consider the following fix up of the income statement Revenues
-Variable costs Contribution Margin -Fixed Costs
Profit
Where the contribution gross profit equals fixed costs, we have hit the break even point.
If we have some desired profit level, we can “work backwards” to determine the number of units we need to produce and sell to get the desired profit. 10
Operating Leverage
Operating Leverage represents the ratio of...If you destiny to get a full essay, order it on our website: Orderessay



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