COST ASSIGNMENT METHODS

Nizam Company produces speaker cabinets. Recently, Nizam switched from a traditional departmental assembly line system to a manufacturing cell in order to produce the cabinets. Suppose that the cabinet manufacturing cell is the cost object. Assume that all or a portion of the following costs must be assigned to the cell:

a. Depreciation on electric saws, sanders, and drills used to produce the cabinets

b. Power to heat and cool the plant in which the cell is located

c. Salary of cell supervisor

d. Wood used to produce the cabinet housings

e. Maintenance for the cell’s equipment (provided by the maintenance department)

f. Labour used to cut the wood and to assemble the cabinets

g. Replacement sanding belts

h. Cost of janitorial services for the plant

i. Ordering costs for materials used in production

j. The salary of the industrial engineer (she spends about 20 percent of her time on

work for the cell)

k. Cost of maintaining plant and grounds

l. Cost of plant’s personnel office

m. Depreciation on the plant

n. Plant receptionist’s salary and benefits

Required:

Identify which cost assignment method would likely be used to assign the costs of each of the preceding activities to the cabinet manufacturing cell: direct tracing, driver tracing, or allocation. When driver tracing is selected, identify a potential activity driver that could be used for the tracing.