€100,000 75,000 – €175,000 5,000 €35 €300,000 – 225,000 €525,000 20,000 €26.25 3 There are at least two classes of benefits a Reduction in the costs of collecting information in separate cost pools. This cost reduction can be sizeable if a standard cost system is used because standards for direct manufacturing labour no longer need to beset. b Reduction in suboptimal decisions arising from the use of an inappropriate cost- allocation base in a machine-paced manufacturing environment. Examples of poor decisions include i Product managers using external vendors to obtain parts that require a labour-intensive process when produced internally, even though it is more cost effective to produce the part internally. ii Excessive attention byproduct managers to control direct manufacturing labour-hours relative to the attention paid to control the more costly categories of direct materials and machining. iii Managers’ attempts to classify manufacturing engineers as indirect labour rather than direct labour resulting in part of their costs being allocated to other products. One benefit of a more appropriate cost-allocation base is that it reduces such suboptimal decisions.
