COMMERCE 2AB3 Lecture Notes - Lecture 16: Cost Driver, Printed Circuit Board, Peanut Butter

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6 Apr 2016
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The traditional costing system was developed in the early of 1900s. In those days most manufacturing companies were labor intensive, the product variety was small, and the overhead costs were generally very low compared to today. In the late 1970s and particularly 1980s, foh costs have increased significantly and the direct costs of material and labor have decreased due to the advances in technology and productivity. For example, increased automation has reduced the use of worker (dl) and increased depreciation. In addition, most companies started to produce more varieties of their products to satisfy different needs for different customers. Moreover, non- manufacturing indirect costs such marketing expenses became very important and significant to achieve customer satisfaction. The traditional approach to cost-allocation often allocate foh to cost objects based on single-volume measures as an overall cost driver such as direct-labor hours, direct-labor costs, or machine hours. Traditional costing considers only indirect manufacturing costs as product cost.

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