Global Journal of Management and Business Research, D: Accounting and Auditing, Volume 21 Issue 2

production department, product-sustaining activities are performed to deal with the increased need for coordination on the shop floor and among production team members when more distinct parts are manufactured. In keeping with prior studies (Cooper and Kaplan 1991, Banker et al. 1995, Banker et al. 1990 ) 2 2 Facility-sustaining activities relate to plant management and facilities maintenance. We do not include any measure to reflect these activities because labor assigned to production departments is not responsible for any facility- sustaining activities , we included the number of distinct parts (NUMPARTS) produced in a production department on each day as a product-sustaining cost driver in our analysis. The number of distinct parts produced in a day reflects the demand for additional activities such as increased coordination, material movements, and storage that are not captured by number of setups. In the Machine Shop, distinct parts produced are the different types of mountings, frames and brackets. In the Paint Shop and Welding departments, distinct parts produced are the different painted and welded components. In the Final Assembly department, the parts represent the assembled products sold to the customers. Our data set enabled us to construct the following daily variables by production department to examine the behavior of indirect production labor costs: number of workers (NUMWORKER), number of setups performed (NUMSETUPS), number of distinct parts manufactured (NUMPARTS), direct labor hours (DLHOURS), direct labor cost (DLCOST), indirect labor hours (ILHOURS), and indirect labor cost (ILCOST). Table 1 presents descriptive statistics for these variables for each of the seven production departments. Variable (Per day) Sheet Metal (n=1365) Machine Shop (n=1423) Brush & Steel Wool (n=1314) Paint Shop (n = 1302) Component Assembly (n=1368) Welding (n =1327) Final Assembly (n = 1391) Number of Workers (NUMWORKER) 26.38 (5.87) 30.97 (9.16) 15.09 (3.28) 16.80 (3.06) 30.12 (7.24) 32.60 (5.84) 32.86 (9.13) Number of Distinct Parts (NUMPARTS) 136.71 (39.22) 58.34 (18.34) 13.96 (4.20) 55.99 (23.50) 30.96 (10.67) 59.44 (13.70) 21.06 (5.72) Number of Setups (NUMSETUPS) 191.72 (62.76) 54.45 (21.75) 15.89 (8.48) 11.85 (4.770 20.31 (10.34) 53.41 (17.48) 7.37 (7.09) Number of Direct Labor Hours (DLHRS) 126.99 (36.24) 184.19 (64.89) 87.64 (27.20) 97.57 (32.33) 188.24 (57.27) 217.40 (57.75) 226.73 (77.13) Number of Indirect Labor Hours (ILHRS) 73.52 (24.13) 58.10 (27.35) 23.19 (14.49) 26.91 (12.54) 34.79 (19.53) 45.92 (16.83) 24.49 (20.90) Indirect Labor Cost (ILCOST) as a % of Direct Labor Cost (DLCOST) 58.24 (13.53) 34.11 (117.31) 28.76 (36.34) 30.19 (50.25) 21.23 (79.84) 21.79 (12.36) 13.10 (67.04) Table 1: Descriptive Statistics (Daily Data) (Standard deviations are in parentheses) A comparison across the seven production departments reflects different patterns of consumption of the activity resources. The averages for the number of workers, the number of distinct parts produced and the number of setups required are very different across departments, reflecting the differences in the requirements of the production process at each stage. Overall, there are systematic differences between the departments in Plant A and those in Plant B that reflect the job shop type environment in the former and the assembly line type setting in the latter. The departments in Plant A have more setups and a higher proportion of indirect labor to direct labor than the departments in Plant B. In particular, the Sheet Metal department has considerably more distinct parts and setups than the other six departments. It also has more setups than parts as some of the parts require more than one setup for certain operations. The Brush & Steel Wool and Paint Shop departments are small, employing relatively few workers and requiring few setups. The number of distinct parts manufactured daily is high relative to the number of setups in the Paint Shop reflecting the flexible automation in that department. © 2021 Global Journals 2 Global Journal of Management and Business Research Volume XXI Issue II Version I Year 2021 ( ) D 4 Cost Hierarchy: Evidence and Implications