Question

Describe a potential cost driver for each of the variable and mixed costs listed below. Explain why each cost driver would be appropriate for its associated costs.

1. Raw materials costs

2. Supplies costs

3. Managerial salary costs

4. Insurance costs

5. Amortization costs

6. Shipping costs

7. Hourly production costs

8. Sales commision

9. Advertising costs

10. Automobile costs

Answer 1

1. Rawmaterials costs-quantity of materials purchased

Because raw materials costs changes because quantity of material used or purchased.

2.Supplies costs-quantity of consumables used.

Supplies costs are the expenses incurred for consumables used. So cost driver is quantity of consumables consumed.

3.managerial salary costs- allocated based on number of hours or days for a particular product.

Because he provides service for the production or sale of goods. It is allocated based on number of hours or days he worked for such units.

4 insurance costs cost of machines insured.

Machines have some historical cost in balance sheet. Insurance costs are allocated to such costs in balance sheet.

5.amortization costs-costs of fixed assets.

Amortization costs are the costs of fixed assets depreciated for every year. So those costs are allocated for such fixed assets.

6.shipping costs-number of output produced.

Shipping costs are the costs incurred to supply the finished goods. Hence number of units produced is the cost driver