Cost Drivers – Relative & Reliable – Accounting Question custom essay

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Instructor think the most important thing is that cost drivers be plausible and reliable. How well we identify the most appropriate cost drivers determines how well managers understand cost behavior and how well managers can control costs.

What we are really trying to do is to ensure that the driver for the cost is relative. Often these drivers are used to allocate manufacturing overhead. For example, let’s assume that we have two departments in our facility which operate a variety of machines to mix a liquid chemical. Let’s also assume that Dept. A’s machines ran a total of 10000 hours and Dept. B’s machines ran a total of 5000 hours for the month. All things being equal, you might choose machine hours as the cost driver.

Question – (1) If our monthly overhead costs were $150,000, how much of that should be allocated to Dept. A and Dept. B?

Please answer with about 270 words. Thanks

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