For instance, economies and diseconomies of scale are well-known economic phenomena. What are Structural Cost Drivers? The structural and executional activities determine the nature and number of the daily activities performed in the company. The structural drivers are the drivers of scale, scope, experience and complexity. It is used to assign cost of a resource to activity or cost pool. It's not as easy as just looking at the numbers though---particularly in the case of overhead headcount, because in many cases the overhead people are providing support services that make the revenue-producers more effective and efficient.
These types of business cost management techniques and analysis approaches are nothing new. In my experience, employees have been either the 1 or 2 cost-driver in every business I've been involved in. Examples Of Executional Cost Drivers Adobe cs6 key free. How should the firm use them to improve its sales rate? Surname1 Student's Name: Professor's Name: Course: Date: Discussion Questions Cost Drivers Apple Inc. The effective use of staff, process layouts, just-in-time processes, etc. The firm operates from an office building and nearby warehouse located in Danville, Virginia.
Several additional examples of the costs driven by activities at each level are presented below: 1. Not regard to the strategic context Design of cost management system changes dramatically depending on the basic strategic positioning of the firmScore keeping, Problem solving, attention direction How should we try to understand cost behavior? A merchandising organization or the sales division of a manufacturing organization might use the following hierarchy. Much emphasis should be directed towards employee involvement, product configuration, quality management, organization layout, and the number of product lines. It can also be used in analysis to determine the causes of overhead, which can be used to minimize overhead costs. With inexpensive housing, mild weather, beautiful scenery, traffic-free roads, a new international airport, and plenty of development, an influx of people and jobs raised the cost of labor substantially.
Cost Drivers and Company Activities Organizations require different types of supporting activities administration, purchasing, marketing, logistics, etc. The firm is privately held and has been financed with a combination of bank loans, personal investments of top managers, and venture capital funding. In traditional costing, the cost driver used Organizational activities There are two types of organizational activities for studying overhead cost: structural and executional. John Shank and Vijay Govindarajan list cost drivers into two categories: Structural cost drivers that are derived from the business strategic choices about its underlying economic structure such as scale and scope of operations, complexity of products, use of technology, etc. That's all part of being a good executive, having the insight to make the right decisions with regard to how you invest the organizations resources to achieve the performance goals you've established. In the production of forks, the stamping of each fork into the prescribed shape is an example of a unit-level cost driver.
The past tendency to ignore overhead, while focusing on direct materials and direct labor, led one researcher to describe overhead-causing activities as the hidden factory. However, the cost of shipping and warehousing are allocated to both high volume and low volume products. Units of final product is no longer an adequate explanation of changes in manufacturing overhead for many organizations. Organizational Cost Drivers Like structural cost drivers, organizational cost drivers influence costs by affecting the types of activities and the costs of activities performed to satisfy customer needs. Authorizing lower-level employees to make decisions to solve problems is an example of an organizational cost driver.
These have a bearing on strategic cost management since all of these activities have a bearing on operational, structural and executional costs. These decisions and actions—undertaken to satisfy customer demand—drives costs. All of the examples of structural and organizational cost drivers involved making decisions. Pillar 1: Cost driver analysis Cost driver analysis is concerned with determining what the actual drivers of activity costs are within your operations. In traditional costing the cost driver to allocate indirect cost to cost objects was volume of output. Because direct materials and direct labor vary directly with the number of units, they are easy to measure. Cost drivers A cost driver is the unit of an activity that drives the change of cost in production or servicing.
Pillar 1: Cost driver analysis Cost driver analysis is concerned with determining what the actual drivers of activity costs are within your operations. The concept is most commonly used to assign costs to the number of produced units. . Advertisement While these cost drivers may be classified in a variety of ways, I believe that dividing them into the three categories of structural, organizational, and activity cost drivers, as I am going to present in this post, provides a useful foundation for the study of managerial accounting. Scope: Degree if vertical integration Experience: how many times in the past the firm has already done what it is doing again? Why is conventional reporting on quality could be a barrier to Total Quality Management. The relationship between the cost driver and total cost is approximately linear within the relevant range. The cost drivers thus are the link between the activities and the cost.
Without customer demand for products or services, the organization cannot exist. To manage activities and their costs, it is necessary to understand how costs respond to cost drivers, which are the factors that cause or influence costs. They cannot get directions from the home base because their cell phones are out of service, out of area, or the battery has died. Examples of some structural and executional activities with cost drivers are listed by category in Table 1 below. Strategic positioning analysis what role does cost management play in the firm? Thank you for the presentation. Question3 Briefly describe the following: 1. At Oneida Silversmiths, facility-level activities include plant management, building maintenance, property taxes, and electricity required to sustain the building.