Single drivers vs. multiple drivers Eagan Electrical Instruments Company esti¬

mates manufacturing support as 950% of direct labor costs. Eagan's controller, Jim Becker, is concerned that the actual manufacturing support activity costs have differed substantially from the estimates in recent months. He suspects that the problem is related to the use of only one cost driver. Jim identified the fol¬ lowing three additional cost drivers that reflect support activities: number of ma¬ terial moves, number of setups, and number of machine hours. He developed the following rates to estimate manufacturing support activity costs:

REQUIRED

(a) Estimate manufacturing support costs using the single-driver and multiple- driver systems.

(b) Why do the two sets of estimate differ?

(c) Why will both methods fail to predict accurately the manufacturing support costs? Is one of the two methods likely to be more useful than the other? Explain.
(LO 1, 3)

Transcribed Image Text:

MULTIPLE COST DRIVER SYSTEM $1 per direct labor dollar $200 per move $300 per setup $20 per machine hour Information for two recent months includes the following: COST AND QUANTITY MAY JUNE Direct labor cost $3000 $4200 Number of material moves 50 70 Number of setups 30 40 Number of machine hours 1000 1200