Design a prototype of the RMC
smartphone
Engineering hours spent on initial product
design
Make design changes to the
smartphone based on
customer feedback
Number of design changes
Production
Manufacture the RMC
smartphones
Machine hours required to run the production
equipment
Package the RMC smartphones
Number of smartphones shipped by RMC
Marketing
Market the new design to cell
phone companies
Number of cell phone companies purchasing
the RMC smartphone
Distribution
Process orders from cell phone
companies
Number of smartphone orders processed
Number of deliveries made to cell phone
companies
Deliver the RMC smartphones
to cell phone companies
Number of deliveries made to cell phone
companies
Customer
service
Provide on-line assistance to
cell phone users for use of
the RMC smartphone
Number of smartphones shipped by RMC
Customer service hours
2-25 (10–15 min.) Cost drivers and functions.
The representative cost drivers in the right column of this table are randomized so they do not
match the list of functions in the left column.
Function Representative Cost Driver
1. Accounts payable A. Number of invoices sent
2. Recruiting B. Number of purchase orders
3. Data processing C. Number of research scientists
4. Research and development D. Hours of computer processing unit (CPU)
5. Purchasing E. Number of employees hired
6. Warehousing F. Number of payments processed
7. Billing G. Number of pallets moved
Required:
1. Match each function with its representative cost driver.
2. Give a second example of a cost driver for each function.
SOLUTION
1.
Function
Representative Cost Driver
1. Accounts payable Number of payments processed
2. Recruiting Number of employees hired
3. Data processing Hours of computer processing unit (CPU)
Number of guests 0 50 100 150 200 250 300
Variable cost per guest
($80 caterer charge –
$5 discount for advertising) $75 $75 $75 $75 $75 $75 $75
Fixed Costs $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000
Variable costs (number of
guests × variable cost per
guest) 0 3,750 7,500 11,250 15,000 18,750 22,500
Total costs (fixed + variable) $14,000 $17,750 $21,500 $25,250 $29,000 $32,750 $36,500
