1. Discuss the plausibility and probable reliability of each of the cost drivers—number of employees or number of reports.

2. What are the 2009 and 2010 SS costs per unit of cost driver for each division using each cost driver? Do the Forest Resources and Lumber Products divisions have legitimate complaints? Explain.

3. What are the incentives that are implied by each cost driver?

4. Which cost driver should Northwest Wood Products use to charge its divisions for SS services? For other services? Why?

The costs of the Systems Support (SS) department (and other service departments) of Northwest Wood Products have always been charged to the three business divisions (Forest Resources, Lumber Products, and Paper Products) based on the number of employees in each division.
This measure is easy to obtain and update, and until recently none of the divisions has complained about the charges. The Paper Products division has recently automated many of its operations and has reduced the number of its employees. At the same time, however, in order to monitor its new process, Paper Products has increased its requests for various reports provided by the SS department. The other divisions have begun to complain that they are being charged more than their fair share of SS department costs. Based on activity analysis of possible cost drivers, cost analysts have suggested using the number of reports prepared as a means of charging for SS costs and have gathered the following information:

Transcribed Image Text:

Lumber Forest Paper Products Products Resources 2009 Number of 762 457 502 Employees 2009 Number of 377 Reports 410 445 2009 SS Costs: $300,000 2010 Number of 413 751 131 Employees 2010 Number of 412 712 432 Reports 2010 SS Costs: $385,000