Stacy Brannen was just completing a tour at Kent Chemical Company's Midwest plant.
Only two weeks ago, she had graduated from State University with a degree in mechanical engineering, and now she was nearing the end of her first day on the job at Kent. The assistant plant manager, Bill Merton, conducted the tour and pointed out the steps involved in processing paints, stains, and wood preservatives.
Although the tour concentrated on the equipment used in the production processes, Stacy found herself wondering how the cost of products was determined. “Bill, can you give me a rough idea of how you calculate product costs?” she asked. “I noticed, for example, that to end up with a gallon of wood preservative ready to ship, we perform both mixing and packaging operations. With labor, material, and overhead added in these separate operations, is assigning costs to wood preservative a difficult job?”
“Well,” Bill replied, “let's see ...