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Cost hierarchy. Hamilton, Inc., manufactures boom boxes ( music systems with radio, cassette, and compact disc players ) for several well - known companies. The
Cost hierarchy. Hamilton, Inc., manufactures boom boxes music systems with radio, cassette, and compact disc players for several wellknown companies. The boom boxes differ significantly in their complexity and their manufacturing batch sizes. The following costs were incurred in : a Indirect manufacturing labor costs such as supervision that supports direct manufacturing labor, $ b Procurement costs of placing purchase orders, receiving materials, and paying suppliers related to the number of purchase orders placed, $ c Cost of indirect materials, $ d Costs incurred to set up machines each time a different product needs to be manufactured, $ e Designing processes, drawing process charts, making engineering process changes for products, $ f Machinerelated overhead costs such as depreciation, maintenance, production engineering, $These resources relate to the activity of running the machines. g Plant management, plant rent, and plant insurance, $ Required: Classify each of the preceding costs as output unitlevel, batchlevel, product sustaining, or facility Required sustaining. Explain each answer. Consider two types of boom boxes made by Hamilton, Inc. One boom box is complex to make and is produced in many batches. The other boom box is simple to make and is produced in few batches. Suppose that Hamilton needs the same number of machinehours to make each type of boom box and that Hamilton allocates all overhead costs using machine hours as the only allocation base. How, if at all, would the boom boxes be miscosted? Briefly explain why. How is the cost hierarchy helpful to Hamilton in managing its business?
Cost hierarchy.
Hamilton, Inc., manufactures boom boxes music systems with radio, cassette, and
compact disc players for several wellknown companies. The boom boxes differ
significantly in their complexity and their manufacturing batch sizes. The following
costs were incurred in :
a Indirect manufacturing labor costs such as supervision that supports direct
manufacturing labor, $
b Procurement costs of placing purchase orders, receiving materials, and paying
suppliers related to the number of purchase orders placed, $
c Cost of indirect materials, $
d Costs incurred to set up machines each time a different product needs to be
manufactured, $
e Designing processes, drawing process charts, making engineering process
changes for products, $
f Machinerelated overhead costs such as depreciation, maintenance, production
engineering, $These resources relate to the activity of running the
machines.
g Plant management, plant rent, and plant insurance, $
Required:
Classify each of the preceding costs as output unitlevel, batchlevel, product
sustaining, or facility Required sustaining. Explain each answer.
Consider two types of boom boxes made by Hamilton, Inc. One boom box is
complex to make and is produced in many batches. The other boom box is simple
to make and is produced in few batches.
Suppose that Hamilton needs the same number of machinehours to make each
type of boom box and that Hamilton allocates all overhead costs using machine
hours as the only allocation base. How, if at all, would the boom boxes be
miscosted? Briefly explain why.
How is the cost hierarchy helpful to Hamilton in managing its business?
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