The costs of the systems support (SS) department (and other service departments) of Southeast Pulp and Paper have always been charged to the three business divisions (forest management, 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 had 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, 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:

1. Discuss the plausibility and probable reliability of each of the cost drivers—number of employees or number of reports.
2. What are the 2011 and 2012 SS costs per unit of cost driver for each division using each cost driver? Do the forest management 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 Southeast Pulp and Paper use to charge its divisions for SS services? For other services?Why?

  • CreatedNovember 19, 2014
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