Dogwood Signs makes customized wooden signs for businesses and residences. These signs are made of wood, which
Dogwood Signs makes customized wooden signs for businesses and residences. These signs are made of wood, which the owner glues and carves by hand or with power tools. After carving the signs, she paints them or applies a natural finish. She has a good sense of her labor and materials cost behavior, but she is concerned that she does not have good measures of other support costs. Currently, she predicts support costs to be 75% of the cost of materials. Close investigation of the business reveals that $70 times the number of power tool operations is a more plausible and reliable support cost relationship.
Consider estimated support costs of the following two signs that Dogwood Signs is making:
1. Prepare a report showing the support costs of both signs using each cost driver and showing the differences between the two.
2. What advice would you give Dogwood Signs about predicting support costs?
Step by Step Answer: