Question

Traditional versus Activity-Based Cost Management Systems Jazon Manufacturing produces two different models of cameras. One model has an automatic focus, whereas the other requires the user to determine the focus. The two products are produced in batches. Each time a batch is produced, the equipment must be configured (set up) for the specifications of the camera model being produced. The manual-focus camera requires more parts than the automatic-focus model. The manual-focus model is also more labor intensive, requiring much more assembly time but less machine time. Although the manual model is more labor intensive, the machine configuration required for this product is more complex, causing the manual model to consume more of the setup activity resources than the automatic camera. Many, but not all, of the parts for the two cameras are purchased from external suppliers. Because it has more parts, the manual model makes more demands on the purchasing and receiving activities than does the automatic camera. Jazon currently assigns only manufacturing costs to the two products. Overhead costs are collected in one plantwide pool and are assigned to the two products in proportion to the direct labor hours used by each product. All other costs are viewed as period costs. Jazon budgets costs for all departments within the plant—both support departments like maintenance and purchasing and production departments like machining and assembly. Departmental managers are evaluated and rewarded on their ability to control costs. Individual managerial performance is assessed by comparing actual costs with budgeted costs.

Answer 1

Business costs are categorized as fixed and variable, differing significantly across industries. For example, an online medical advice platform may have high fixed costs but low variable costs, while a leaf raking service might experience the opposite. Recognizing the balance of these costs is vital for effective cost management and pricing strategies in any business.

Step-by-step explanation:

Understanding Cost Structures in Different Business Models

Fixed costs and variable costs form the core components of a business's total cost structure. Fixed costs, such as rent or lease payments, equipment acquisition, and research and development, do not vary with the level of production. On the other hand, variable costs change with production volume, such as raw materials and direct labor. Depending on the industry, these costs can behave differently. For instance, an online platform providing medical advice may have high fixed costs initially while maintaining low variable costs for operation. However, certain scenarios like heavy web traffic might cause variable costs to spike, requiring additional investment to scale up the infrastructure.

Conversely, service businesses with mobile operations, like leaf raking or snow shoveling services, might have minimal fixed costs, relying more on variable inputs like labor. Manufacturing operations that operate incessantly might experience sharp increases in marginal costs due to diminishing returns, as the need for frequent repairs and maintenance arises from uninterrupted equipment usage. These examples highlight how different business models encounter varying patterns of costs and how the balance of fixed and variable costs are crucial for cost management and pricing strategies within firms.