Glaser Health Products of Ranier Falls Case Study

QUESTION ONE

OPERATIONS	SALES	ADMINISTRATIVE
Depreciation of factory equipmentAssembly foreman’s salarySupplies for the machining departmentElectricity for the assembly departmentLost materials in a machining departmentDirect labor in the assembly department Packing suppliesSupplies for production schedulingCost of repairing parts and improperly manufactured in the Machine departmentPaint for the assembly departmentHeat, light, and power for the factory	Advertising manager’s salarySalespersons’ salariesSalespersons’ travel expensesAdvertising supplies usedSupplies for the sales officeSales commissions	Advertising manager’s salarySalespersons’ salariesSalespersons’ travel expensesAdvertising supplies usedSupplies for the sales officeSales commissions

QUESTION TWO

Unit-level activities are those activities performed every time a unit is produced/handled, Product-level activitiesare the activities that are performed as needed to support the production of each different type of product or service, Batch-level activities are performed each time a batch of goods is produced or handled and Facility-level activities sustain a facility’s general production process. The costs for Glaser Health Products of Ranier Falls are categorized as follows

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

QUESTION THREE

COST DRIVERS

(a) Depreciation on factory equipment. UNITS PRODUCED 

(b) Depreciation on office equipment. UNITS PRODUCED 

(c) Depreciation on factory building. YEARS IN OPERATION

(d) Advertising manager’s salary. ADVERTISEMENTS DEVELOPED IN NUMBER

(e) Assembly foreman’s salary. UNITS ASSEMBLED IN NUMBERS

(f) Salespersons’ salaries UNITS SOLD IN NUMBERS

(g) Salespersons’ travel expenses. CUSTOMERS CONTACTED IN NUMBERS

(h) Supplies for the Machining Department. UNITS MACHINED/PRODUCED

(i) Advertising supplies used. ADVERTS DEVELOPED

(j) Electricity for the Assembly Department. MACHINE HOURS

(k) Lost materials (scrap) in a Machining Department. VOLUME LOST MATERIALS

(l) Direct labor in the Assembly Department. UNITS ASSEMLED

(m) Supplies for the sales office. CUSTOMER ORDERS PROCESSED IN NUMBERS

(n) Sales commissions. UNITS SOLD

(o) Packing supplies. UNITS PACKEGED

(p) Cost of hiring new employees. NEW EMPLOYEES IN NUMBERS

(q) Payroll fringe benefits for workers in the Shipping Department. SHIPPING DEPARTMENT’S EMPLOYEE NUMBER

(r) Supplies for Production Scheduling. SCHEDULES PRODUCED IN NUMBERS

(s) Cost of repairing parts improperly manufactured in the Machining Department. IMPROPERLY MANUFACTURED PARTS IN NUMBERS

(t) Paint for the Assembly Department. PAINT USED IN VOLUME

(u) Heat, light, and power for the factory. NUMBER OF SQUARE FEET USED

(v) Leasing of computer equipment for the Accounting Department.  PERIOD LEASED

QUESTION FOUR

The cost controller will have to identify major activities happening in the production process, which have been done in question two above. The four activities have been identified as unit level, product level, batch level and facility level activities. After identifying the activities, each identical cost category is pinned to the appropriate activity center as illustrated in the solution in question two. For each individual cost category is attached to a specific cost driver. For instance, depreciation on factory equipment has number of units produced as the cost driver as illustrated in the solution for question three. After linking cost categories identified under activity centers to cost drivers, the cost controller will come up with a cost function for each of the activity centers.  For instance, for the unit level activities, the cost controller of costs can come up with a cost function of the following nature;

Y=aX₁+bX₂+cX₃+….nX_n where,

Y is the cost for an activity group in this case, Unit-level Activity group

a is the number of units machined

X₁ is the cost per unit machined

b is the number of machine hours

X₂ is the cost per electricity consumed in the assembly department

c is the volume of lost (scrap) materials

X₃ is the cost per unit of lost materials (scrap) in a Machining Department

n generally is the cost driver

X_n is the cost per cost category.

From the above cost function, we can see that as the cost driver move upwards, they are distributed to individual products by way of multiplying the cost driver, for instance, number of units produced, with the cost per unit, for instance, cost per electricity consumed.

QUESTION FIVE

When costs per activity center are determined using the method described in solution to question four above, all costs for the activity centers should be pooled together and divided by the number of units produced. That is, Cost per product = (Y₁+Y₂+Y₃+Y₄)/n where,

            Y₁ is costs associated to unit level activity center

            Y₂ is costs associated to product level activity center

            Y₃ is costs associated to batch level activity center

            Y₄ is costs associated to facility level activity center

            n is the number of products produced

QUESTION SIX

Preliminary stage and primary stage cost drivers when used by firms provide enough data simplified enough to manage cost drivers to the basic unit. This way, management of a firm is able to control costs the best way possible. With the two, management can authoritatively determine areas of operation that need evaluation to help in bringing the costs down.

From another aspect, management is able to decide where new investments in terms of technology and skill should be injected to reduce costs. Essentially, this means that there is the solving of the dilemma of decision making since the method provides reliable and accurate sets of cost data that the management can manipulate to get the firm performing optimally.