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This a assay about strategic cost management topic...




This a assay about strategic cost management topic. Please Read: Capacity Utilization Management.pdf ( see the attached file) [Pages 1-9, Page 26-28 ?Normal Capacity Models?, Page 34 ?Conclusion?] Discuss: In the Normal Capacity Model ? the authors discusses number of hours of machine use as a key driver for Caterpillar (a publicly traded company that manufactures agricultural products): "The key elements of the Normalized Costing Approach are: a. asset depreciation is calculated on hours of machine use; b. abnormal expenses are eliminated from operational cost pools (e.g., plant modernization costs); c. the behavior of costs within a process is determined and defined within a formula that recognizes key elements affecting the cost of capacity within a process; d. the capacity of the process is then determined, using practical capacity baselines set over a three- to five-year period; e. and normalized cost is then determined by combining cost and capacity information to create a cost estimate under a given set of operating conditions." (Capacity Utilization Management) Are there any limitations to defining a machine?s depreciation by number of hours [think about someone selling a car to you ? what other qualities would you look for]. What other variables would you include in building a cost model for machine depreciation?


Paper#6545 | Written in 18-Jul-2015

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