MANAGERIAL ACCOUNTING OPERATIONS

OPERATION	SALES	ADMINISTRATIVE
Depreciation on factory equipment	Salespersons' travel expenses	Advertising manager's salary
Depreciation on office equipment	Supplies for the sales office	Assembly foreman's salary
Depreciation on factory building	Sales commissions	Salespersons' salaries
Supplies for the Machining Department		Lost materials (scrap) in a Machining Department
Advertising supplies used		Direct labor in the Assembly Department
Supplies for Production Scheduling		Payroll fringe benefits for workers in the Shipping Department
Packing supplies		Electricity for the Assembly Department
Cost of hiring new employees		Cost of repairing parts improperly manufactured in the Machining Department
Heat, light, and power for the factory		Paint for the Assembly Department
		Leasing of computer equipment for the Accounting Department

(a) Unit-level activities = Paint for the Assembly Department, and Cost of repairing parts improperly manufactured in the Machining Department

Cost drivers= machine hours or direct labor hours

(b) Product-level activities = Electricity for the Assembly Department, Supplies for the sales office, Leasing of computer equipment for the Accounting Department and Direct labor in the Assembly Department

Cost drivers= number of designs or number of product designs

(c) Batch-level activities = Payroll fringe benefits for workers in the Shipping Department, Lost materials (scrap) in a Machining Department, Salespersons' salaries, Assembly foreman's salary and Advertising manager's salary, Salespersons' travel expenses and Sales commissions

Cost drivers = inspection time or number of purchase orders or setup time

(d) Facility-level activities = Depreciation on factory equipment, Depreciation on office equipment, Depreciation on factory building, Supplies for the Machining Department, Advertising supplies used, Supplies for Production Scheduling, Packing supplies, Cost of hiring new employees and Heat, light, and power for the factory

Cost drivers= number of employees managed or square footage

 (Weygandt et al, 2010).

As illustrated in this case, all these costs will be used in planning as well as controlling decision making rather than evaluation of inventory. Moreover, the activity-based costing system will be in the position of providing efficient reallocation of the Glaser’s overhead costs unlike a system for looking at either all the activities which their associated overhead costs comprises or the cost drivers. Therefore, the general structure of the Glaser’s activity based costing model should comprise of cost of activities, consumption of resources and objects.

Nonetheless, activity-based costing model has the ability of changing the rule of the game. This is because it ends up changing some of the key measures which are used by the managers during decision making as well as evaluation of an individual’s performance (Kaplan & Anderson, 2007). For as to ensure that the company has managed to implement a successful activity-based costing model, it management should first examine their overhead costs. The next thing is justifying whether or not such costs have sufficient overhead to worry them. Although we cannot estimate the company’s monetary value, it them implies that they have numerous divisions with a relatively large amount of costs categories that its management ought to take into consideration (Kaplan & Anderson, 2007). Operations, administrative and sales will then be the three main divisions of Glaser Health Products. The cost categories which have been sub-divided under each division will assist the management in determining where they belong.

 Primary Stage Cost Drivers

The significance of the primary stage cost driver is that it assists in linking costs in an activity directly with their associated products. Facility level costs will first be subject to several cost pools before they are to be assigned to the primary stage cost driver. The same will apply to the product level costs. Unit level costs and the batch level costs will also be linked directly to the product. The can also be grouped via various activities before they will be assigned to their constituent products at the primary stage (Kimmel et al, 2008).

Preliminary and Primary Stage Cost Drivers

In the process of implementing the activity based costing system; the significance of the preliminary and primary stage cost drivers is that both will be used in taking the products through all the steps required for assigning the correct product (Kaplan & Anderson, 2007). For instance, in the preliminary stage, all the costs which will be assigned to the activities at every period can be associated with other activities. In addition to that, during the primary stage, the costs will be systematically linked to the product.  In case the costs are to be assigned directly to the products, then it means that the will be certain costs which will not be allocated based on the initial preliminary stage.

Conclusion

To sum up, it is essential to ensure that each cost has been placed in its appropriate level. The reason for this because it will ensure that financially each individual product is used to its best ability. Since initially, the activity costs cannot be easily noticed, it then means that they will be required for breaking down the company’s costs for service products. This is what will ensure it has gained profit as well as limiting excess funds which will be used for other unnecessary activities. Finally, by finding the correct cost which fits each category, it then means that the company will be given the capacity of getting the accurate cost which will be used for producing a product.

 

Reference

Kaplan, R. S., & Anderson, S. R. (2007). Time-driven activity-based costing: A simpler and more powerful path to higher profits. Boston: Harvard Business School Press.

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2008). Accounting: Tools for business decision making. Chichester: John Wiley

Kaplan, R. S., & Anderson, S. R. (2007). Time-driven activity-based costing: A simpler and more powerful path to higher profits. Boston: Harvard Business School Press

Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2010). Managerial accounting: Tools for business decision making. Hoboken, NJ: Wiley.