Cost drivers examples

The value of time versus the cost of the energy needed to save time—for example, motor trips take longer when people drive at a relatively fuel-efficient 55 mph rather than at the less efficient 70 mph, but the lower speed costs drivers a valuable resource, their time and... 

The general idea is that C is chosen as the cost driver. In the example, the house would be the cost driver. Where in a community the house is desirable to be built would be a contributing factor as would the specific design chosen and the amount of land the house would sit on. These factors can aU be correlated and historical data, design parameters, and indexes can be referred to for factor... 

For each overhead department, it is necessary to define the particular activities that drive the functions within that department. For example, in 1999 the purchasing department (see panel A of Table 7) incurred total costs of 5 million. Cost drivers were the purchasing of raw materials, the purchasing of components, and vendor relations. Appropriate allocation measures for these activities are the number of orders for purchasing, and the number of vendors for vendor relations. Levels of those activities for each auto model are indicated in panel B. In turn, these levels lead to the total allocated costs for each auto model in panel C. 

In some Asian countries prices often are not set by what the market will bear but are completely controlled by the government and have no reflection on true costs. For example, the eost of the ride on a jeepney bus was controlled by the president of the Philippines, as well as the price of gasoline. Both prices could be changed at will by the president. These types of actions have caused strikes by the drivers that left marty people stranded. 

After defining activities, we can assign a driver that best reflects cost variability in that activity. The cost drivers use up the resources supporting the activity and can be measured by either activity input or output. If we developed fixed and variable costs, we probably gained insight into which drivers best fit any activity. Table 27.10 contains examples of drivers for a few common supply chain activities. 

The activity cost for a particular product is the unit cost of that activity multiplied by the number of units required, as measured by our cost driver. For our NC machine, for example, the driver is machine hours. The cost could include the categories presented as an example in Table 27.11. We assume the machine is available for 2000 work hours per year. The activity cost is 140 per machine hour. If each unit of our product took two machine hours to produce, the activity cost would be 280. 

The indirect costs, for example, for supply planning and coordination, turned out to constitute a significant portion of the biomass supply costs, but are not normally enter into costing. The smaller the biomass yields, the more considerable indirect costs. Oversized special equipment used by service providers, which is not justifiable for a cost effective crosscompany supply chain, is another cost driver. 

Assume, for example, that you want to dramatically reduce your throughput times. What can you do now You can, e.g., raise the inventory rate by a factor of 3. Immediately, all storage, idle, and delay times are 3 times more expensive. They instantly move up in the cost driver analysis and thus more into the focus of your responsible employees. 

Among the important process-related cost drivers are (i) material consumption and (ii) duration of the process. As an example, the cost share of the carbon source (e.g., glucose) for the fermentation (biosynthesis) of a bulk commodity product in a low labor cost environment typically exceeds 70% of the USP cost, while the remaining 30% is distributed over personnel, maintenance, depreciation, and others. This contrasts with high-value specialties such as recombinant proteins, where the cost of the carbon source in fermentation is negligible. In the breakdown shown in the following, material comprises not only the carbon source but also the costs of other consumables and disposables. 

Because of the inherent instability of PTW, two skills that riders must acquire are acute hazard perception and quick appropriate responses to emerging hazards. Small objects on the road, potholes, pavement deformations, spaces between adjoining pavement segments, cracks in asphalt and concrete, oils spills, loose gravel, and puddles that may be inconsequential to car drivers can be life-threatening hazards to the motorcyclists, and must be avoided at all costs. For example, as part of a motorcycle crash risk study conducted in Australia, Haworth et al. (1997), revisited the same sites where 206 motorcycles crashed and noticed that in 14 percent of the crashes unclean road and loose material on the road probably contributed significantly to... 

ABC recognises that overhead costs do not just happen, but are caused by activities, such as holding products in store. ABC therefore seeks to break the business down into major processes - such as manufacture, storage and distribution - and then break each process into activities. For example, the distribution process would include such activities as picking, loading, transport and delivery. For each of these activities, there must be one cost driver what is it that drives cost for that activity For example, the cost driver for the storage activity may be the volume of a case, whereas the transport activity may be driven by weight. Once we know the cost driver, we need to know how many units of that cost driver are incurred for that activity, and the cost per unit for the cost driver. 

For example, the cost driver for the transportation activity may be the number of kilometres driven, and the cost per kilometre would be the cost per unit of the cost driver. This yields the cost of the activity and, when summed across all of the activities in a process, the total cost of that process. 

ABC is difficult to implement because we need first to understand what the discrete processes are in a business where the existing links between functions are not well imderstood. There is then the issue of identifying the cost driver, which requires a fresh way of looking at each activity. For example, the cost driver for a warehouse fork-lift operator would be the number of pallets moved. The cost driver for stocking shelves would be the number of pieces that must be stacked in a given time period. A further problem occurs if there is more than one cost driver for a given activity. You are then faced with the same problem as with overhead allocation on what basis should the cost drivers be weighted Usually, this problem shows that activities have not been broken down into sufficient detail, and that more analysis is needed. ABC can therefore become complex to implement. 

Once the required horsepower and number of stages are estimated, a choice of compressor type can be made from the considerations included earlier. Some example selections are included in Table 10-1, The selections listed in this table are meant as common types that would normally be specified for the given conditions. It must be emphasized that the.se are not recommendations that should be accepted without consideration of the advantages and disadvantages listed earlier. In addition, local foundation conditions, type of drivers available, cost of fuel, availability of spaie... 

Second, intervention is justified because social costs may exceed private costs as well as private benefits. For example, when an individual chooses to take a personal automobile to work instead of mass transit, the individual driver receives the short-term benefits (privacy, comfort, speed, and convenience) while the negative social costs (greater air pollution, highway construction, traffic jams, and resource depletion) are shared by all. Intei vention usually is an attempt to lower the social costs. Flowever, the prob-... 

Figure 8.2 illustrates the format of a typical absorption costing exercise. This exercise can easily be used to calculate the overall profit or loss of each enterprise and its profit margin. See for example Fig. 8.3. One of the difficulties of this exercise is allocating the fixed costs between the various enterprises. Take housing for example if the shed is shared between beef cattle and sheep, then the allocation of the cost could be made on a space and time basis. On a large-scale farm with several workers there will probably be a shepherd, a stockman, and a tractor driver for the arable crops. However, on a smaller farm where the farmer and his family do all the work then division of time between...

Example 13.4 A centrifugal pump is required to deliver 100 m3 of water per hour with an increase in pressure of 5 bar. If the driver for the pump is to be an electric motor with an efficiency of 90%, electricity costs 0.06 KW h-1, operating for 8300 hours per year, estimate the annual cost of power. 

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