Tute 4 Homework – Product Costing Systems

3.3

In traditional management accounting systems, volume-based cost drivers were

used such as units produced, or kilometres driven, assuming that all costs are driven
by the organisation’s level of activity (production or sales volume).

More recent approaches recognise that there are a range of cost drivers that may
also be non-volume-based. ABC allows a range of cost drivers such as unit level,
batch level, product level, and facility level so that for these various types of cost
there is a more realistic link between the cost and its cost driver.

3.9

a) Variable Cost, as the rubber in a tyre producing company is likely to be the

only direct material used in the manufacturing process
b) Unit level Cost
c) The quantity of rubber is a useful cost driver for cost management as it based
on the number of tyres produced, thus a direct material cost.
Can also not be useful as it won’t take into account rubber wastage or
changing prices by suppliers, can’t identify the underlying causes of the direct
material

3.14

The account classification method can be used to estimate costs by identifying costs
being of a particular type, analysing past behaviour to understand the expected cost
in the future or using time and motion studies.

3.26
3.27
3.42

labour hours is our

cost driver >
variable overhead
is split up using
the direct labour
hours

don’t need to x50

Don’t rely on
direct labour,
direct material

Don’t include
intercept as it is
a fixed cost

Variable costs
are different
(level of activity)