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Sir in part b how to discuss the appropriateness of the cost driver? If i am not mistaken it seems like the answer didn’t discuss this.
Also in part c can explain to me the meaning of this point made in the answer?
‘The problem of ‘cost driver denominator level’ may also prove difficult. This is similar to the problem in a traditional volume related system. This is linked to the problem of fixed/variable cost analysis. For example the cost per batch may be fixed. Its impact may be reduced, however, where the batch size can be increased without a proportionate increase in cost.’Thank you.
I don’t have the ACCA answer, but the BPP answer does seem to discuss whether the chosen cost drivers are appropriate eg labour costs driven by costs per hour and hours taken.
All the writer is trying to say is that, for example, set-up costs might be fixed per set-up and driven by the number of set-ups, but the effect of that is reduced if for one set-up you produce, say 10,000 units instead of 5,000 units. That effect and possiblity might get lost by concentrating on cost drivers.
Does it mean that to discuss the appropriateness of cost driver is to identify the appropriate cost driver? Because i thought to discuss is to state arguments for and against.
The effect stated is fixed cost effect?
I think it just means justify the choice of cost drivers. The examples used on the BPP book are so obvious there’s not much to discuss. For example, what else would drive labour costs but rate per hour and hours taken.Similarly it argues that batch setup costs are driven by the number of setups.
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