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What is a cost driver? Give one example.

Consumer Focus is a marketing research firm that organizes focus groups for consumer-product companies. Each focus group has eight individuals who are paid \$50 per session to provide comments on new products. These focus groups meet in hotels and are led by a trained, independent, marketing specialist hired by Consumer Focus. Each specialist is paid a fixed retainer to conduct a minimum number of sessions and a per session fee of \(\$ 2,000\). A Consumer Focus staff member attends each session to ensure that all the logistical aspects run smoothly. a. Direct or indirect (D or I) costs with respect to each individual focus group. b. Variable or fixed (V or F) costs with respect to how the total costs of Consumer Focus change as the number of focus groups conducted changes. (If in doubt, select on the basis of whether the total costs will change substantially if there is a large change in the number of groups conducted.) You will have two answers (D or \(1 ;\) V or F) for each of the following items: A. Payment to individuals in each focus group to provide comments on new products B. Annual subscription of Consumer Focus to Consumer Reports magazine C. Phone calls made by Consumer Focus staff member to confirm individuals will attend a focus group session (Records of individual calls are not kept.) D. Retainer paid to focus group leader to conduct 20 focus groups per year on new medical products E. Meals provided to participants in each focus group F. Lease payment by Consumer Focus for corporate office G. \(\operatorname{cost}\) of tapes used to record comments made by individuals in a focus group session (These tapes are sent to the company whose products are being tested.) H. Gasoline costs of Consumer Focus staff for company-owned vehicles (Staff members submit monthly bills with no mileage breakdowns.

Bridget Ashton is getting ready to open a small restaurant She is on a tight budget and must choose between the following long-distance phone plans: Plan A: Pay 10 cents per minute of long-distance calling. Plan B: Pay a fixed monthly fee of \(\$ 15\) for up to 240 long-distance minutes, and 8 cents per minute thereafter (if she uses fewer than 240 minutes in any month, she still pays \(\$ 15\) for the month). Plan C: Pay a fixed monthly fee of \(\$ 22\) for up to 510 long-distance minutes and 5 cents per minute thereafter (if she uses fewer than 510 minutes, she still pays \(\$ 22\) for the month). 1\. Draw a graph of the total monthly costs of the three plans for different levels of monthly long-distance calling. 2\. Which plan should Ashton choose if she expects to make 100 minutes of long-distance calls? \(240 \mathrm{min}\) utes? 540 minutes?

Scott Hewitt, the new Plant Manager of Old World Manufacturing Plant Number \(7,\) has just reviewed a draft of his year-end financial statements. Hewitt receives a year-end bonus of \(10 \%\) of the plant's operating income before tax. The year-end income statement provided by the plant's controller was disappointing to say the least. After reviewing the numbers, Hewitt demanded that his controller go back and "work the numbers" again. Hewitt insisted that if he didn't see a better operating income number the next time around he would be forced to look for a new controller. Old World Manufacturing classifies all costs directly related to the manufacturing of its product as product costs. These costs are inventoried and later expensed as costs of goods sold when the product is sold. All other expenses, including finished goods warehousing costs of \(\$ 3,250,000\) are classified as period expenses. Hewitt had suggested that warehousing costs be included as product costs because they are "definitely related to our product." The company produced 200,000 units during the period and sold 180,000 units. As the controller reworked the numbers he discovered that if he included warehousing costs as product costs, he could improve operating income by \(\$ 325,000\). He was also sure these new numbers would make Hewitt happy. 1\. Show numerically how operating income would improve by \(\$ 325,000\) just by classifying the preceding costs as product costs instead of period expenses? 2\. Is Hewitt correct in his justification that these costs "are definitely related to our product." 3\. By how much will Hewitt profit personally if the controller makes the adjustments in requirement 1 4\. What should the plant controller do?