Question

Case Details Glaser Health Products of Ranier Falls, Georgia, is organized functionally into three divisions: Operations, Sales, and Administrative. Purchasing, receiving, materials and production control, manufacturing, factory personnel, inventory stores, and shipping activities are under the control of the vice-president for operations, George Gottlieb. Advertising, market research, and sales are the responsibility of the vice-president for sales, Jake Bogan. Accounting, budgeting, the firm's computer center, and general office management are delegated to the corporate controller (Administrative), Charlie Kaplan. The following cost categories are found in the company as a whole: (a) Depreciation on factory equipment. (b) Depreciation on office equipment. (c) Depreciation on factory building. (d) Advertising manager's salary. (e) Assembly foreman's salary. (f) Salespersons' salaries. (g) Salespersons' travel expenses. (h) Supplies for the Machining Department. (i) Advertising supplies used. (j) Electricity for the Assembly Department. (k) Lost materials (scrap) in a Machining Department. (l) Direct labor in the Assembly Department. (m) Supplies for the sales office. (n) Sales commissions. (o) Packing supplies. (p) Cost of hiring new employees. (q) Payroll fringe benefits for workers in the Shipping Department. (r) Supplies for Production Scheduling. (s) Cost of repairing parts improperly manufactured in the Machining Department. (t) Paint for the Assembly Department. (u) Heat, light, and power for the factory. (v) Leasing of computer equipment for the Accounting Department

4. Glaser Health Products is interested in using activity-based costing to identify as many costs as possible with the products. These costs will be used for planning and control decisions rather than for inventory valuation. The controller decided that all operation costs will be related to products but only those sales and administrative costs that are classified as unit-level, batch-level, or product-level costs should be related to products. Using preliminary stage cost drivers, explain how individual items of costs will be traced to activity groupings. 5. Using primary stage cost drivers, show how the costs should be related to products. 6. Explain why it is necessary to use preliminary stage and primary stage cost drivers..

Answer 1

4.

The decision of the Controller is not advisable. Because if the organisation has desired/decided to use activity based costing method it is advisable to use the method for the whole organisation/Product.
Two stages as known:
Primary stage which is based on activity/ies

secondary stage which is based on the Products

The traceability of the cost will be based on the combination of  (nature of expenses and activity)Say for example

Sales man salary ( nature of salary expenses is based on time and nature of activity is based on Sales done by the salesman)

5.

(a) Depreciation on factory equipment. - Machine Hrs operated

(b) Depreciation on office equipment. - Time

(c) Depreciation on factory building. - Time

(d) Advertising manager's salary. - No of Advertisements/products

(e) Assembly foreman's salary.-No of Assemblies

(f) Salespersons' salaries. - No of each products sold

(g) Salespersons' travel expenses. -No of each products sold

(h) Supplies for the Machining Department. - No of supplies per product

(i) Advertising supplies used. -No of Advertisements/products

(j) Electricity for the Assembly Department. - No of Machine hrs/product

(k) Lost materials (scrap) in a Machining Department. - Direct to the product

(l) Direct labor in the Assembly Department. - No of labour hrs/products

(m) Supplies for the sales office. - No of units sold/Product

(n) Sales commissions. - No of units sold/Product

(o) Packing supplies. - no of Materials consumed

(p) Cost of hiring new employees. - based on activity

(q) Payroll fringe benefits for workers in the Shipping Department. - Direct

(r) Supplies for Production Scheduling. - no of Production runs/product

(s) Cost of repairing parts improperly manufactured in the Machining Department. - Direct to the product

(t) Paint for the Assembly Department. - no of assemplies

(u) Heat, light, and power for the factory. - No of machine hrs

(v) Leasing of computer equipment for the Accounting Department - Direct.

6. It is necessary to identify the accurate expenses for the product which is in future helps to decided whether additional qty to produced or to be stopped/reduced, Associate costs are directly traced and thus eliminates the lack of transparency in decision making