Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 55

Structural Cost Drivers

Case A. Food Fare is a small chain of restaurants that has developed a loyal customer base by providing fast-food items with more choices (e.g., how the hamburger should be cooked; self-serve toppings) and a more comfortable atmosphere. The menu has a small number of popular items, including several different hamburgers, grilled chicken sandwiches, and salads. Recently, to broaden its appeal, Food Fare added barbecue, seafood, and steak to its menu.

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Case B. Gilman Heating and Air Conditioning, Inc., provides a broad range of services to com­mercial and residential customers, including installation and repair of several different brands of heating and air conditioning systems. Gilman has a fleet of 28 trucks, each operated by one or more service technicians, depending on the size of a job. A recurrent problem for Gilman has been coordinating the service teams during the day to determine the status of a job and the need for parts not kept in the service vehicle as well as to identify which team to send on emergency calls. Gilman’s service area is spread over an urban/rural area of approximately 20 square miles. The company has developed cost and price sheets so that the service technicians accurately and consistently price the service work they perform.

Required For each case, identify the important structural cost drivers for the company and the related strategic issues that it should address to be competitive.

Step 1 of 3

Cost is expense of resource which happens when the resource is used. Cost object is basically the activity or object to which the cost is associated and is measured for. Cost driver is a reason that brings change to cost of an activity.