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Would you please provide a detailed response to the individual answer below. I included the original question that the individual had to answer. -Initial Question:
Would you please provide a detailed response to the individual answer below. I included the original question that the individual had to answer. -Initial Question: Would your company be more likely to benefit from using a manufacturing cost hierarchy or a customer cost hierarchy for determining cost drivers? Explain your answer and identify one cost for each of the four cost hierarchy categories. Present findings in manner that could be shared with class. Individual Answer: Though it may seem like a cop-out to use, I work for an accounting firm. Like any business we have variable, fixed, mixed and step expenses. Of our variable costs, the best and easiest to convey are utilities; the electric, water and gas bills change from month to month (more like season to season). We hardly use the gas heating in the summer and spring but have to use it in the fall and winter due to West Virginia's harsh climate, therefore the gas bill will be significantly higher from September to March than it will be during the rest of the year. A fixed cost we incur is rent. Rent expense month to month does not change, regardless of utilization, as per the terms of the lease. A mixed cost would be my employer's company vehicle. It is mixed because the monthly payment does not change but other expenses related to the vehicle do (gas, mileage, repairs and maintenance, etc.). Most of the accountants at my firm are salaried, so regardless of the amount of work done, the pay remains the same. However, occasionally, someone does receive a raise. This would be considered a step cost because for a period of time, there are no changes and suddenly, the cost increases. Though an argument could be made for both cost hierarchies, a manufacturing cost hierarchy fits an accounting firm best. Though we do not produce a physical product, we do manufacture deliverables. Say we are setting up a DCAA compliant time keeping system for a client: the cost of the program and the labor hours we put into the implemenation of the system would be considered part of the unit level. At the batch level, producing the group of financial statements we send to clients requires labor hours and subscriptions to numerous programs. At the product level, marketing the services we provide is costly; we pay for a website and the expenses to drive back and forth to client and potential client sites. Last but certainly not least, at the facility level, the firm pays for rent, utilities, computer maintenance and office furniture. Horngren, C. (2014). Introduction to Management Accounting (16th Ed.). Pearson
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