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1) An analyst was developing a cost factor to estimate non-recurring tooling as a function of the
recurring tooling cost. If the factor was constructed as:
Nonrecurring Tooling Cost
Total (Recurring + Nonrecurring) Tooling Cost
The mistake was:
Nonrecurring costs were included in the denominator
You can't have a factor with a cost-to-cost relationship
The total cost should be in the numerator
Recurring tooling would not be a good cost driver
Solution
Nonrecurring costs were included in the denominator

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1) An analyst was developing a cost factor to estimate non-recurring.pdf

  • 1. 1) An analyst was developing a cost factor to estimate non-recurring tooling as a function of the recurring tooling cost. If the factor was constructed as: Nonrecurring Tooling Cost Total (Recurring + Nonrecurring) Tooling Cost The mistake was: Nonrecurring costs were included in the denominator You can't have a factor with a cost-to-cost relationship The total cost should be in the numerator Recurring tooling would not be a good cost driver Solution Nonrecurring costs were included in the denominator