Solved… Statements on Management AccountingPRACTICE OF MANAGEMENT

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?,

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