Average Costs and Variable Costs as Performance Measures

Essay

Average Costs and Variable Costs as Performance Measures
The manager of the manufacturing unit of a company is responsible for the costs of the manufacturing unit. The president is in the process of deciding whether to evaluate the manager of the manufacturing unit by the average cost per unit or the variable cost per unit. Quality and timely delivery would be used in conjunction with the cost measure to reward the manager.
Required:
a. What problems are associated with using the average cost per unit as a performance measure?
b. What problems are associated with using the variable cost per unit as a performance measure?