Brad Henry has just purchased the film studio of a movie company that specializes in action ...

One of the first problems will be the timing of matching the cost drivers with the actual movie production process. Under the former budget system, the relationships with many of the cost drivers were probably forced to meet budget, or else poorly kept because they were substantially under budget and control over them was weak.

Next will be the problem of determining which costs were fixed and which were variable under the budget system. It may be difficult to determine those which were truly variable.

Timing problems will also have to be reconciled. Some costs may be incurred monthly rather than by movie, and some type of accrual will have to be made to keep the costs allocated to the proper cost driver.

Lastly, there may be gaps in the historical data because only total costs had to be maintained within the budget. There was probably little attention paid to cost categories, thereby causing reliable cost data to be scarce.