L. Elise Bowling Case 5A - Glaser Health Products BUS 630 Managerial Accounting Wendy Achilles February 25, 2013 Case 5A – Glaser Health Products Glaser Health Products of Ranier Falls, Georgia needs assistance in evaluating and classifying costs in order to implement an activity-based costing system. As stated in the case, these costs will be used for planning and control decisions rather than inventory valuation. The activity-based costing system will provide better allocation of Glaser’s overhead costs rather than a system to look at the cost drivers or the activities that their overhead costs comprise. Glaser’s general structure of an activity-based costing model should consist of cost …show more content…
For instance, management is correct in identifying each of the costs using four different activities. These include unit-level activities, batch-level activities, product-level activities, and facility-level activities. This is a great system because the fewer activities Glaser can use to do this, the easier the accounting will be for management. These four activities will allow Glaser to fairly and accurately allocate overhead to product lines. (Appendix B illustrates each of the costs under one of the four activities and also classifies the four activities under one of the three divisions). After Glaser management has identified the handful of the activities that connect overhead expenses to products, they must use the appropriate measure (the cost driver) to tie the overhead expenses to the product lines or service lines. To achieve this management must specify an appropriate cost driver for tracing costs associated with the various levels of activities to the next cost objective or products. The cost drivers can include a number of things such as direct labor hours, number of batches, or number of employees. (Appendix C shows the appropriate cost driver with the various levels of activities). Under the Activity-based costing system, Glaser will use preliminary stage cost drivers to link costs of resources consumed in one activity center to other activity centers. Some costs, such as batch-level activity center costs are
This type of cost system further allows the activities to be specifically tracked in each of the company’s markets.
Fully explain emotional intelligence, and give two (2) examples of the concept. Next, examine the concept of “emotional quotient” compared to traditional “intelligence quotient.”
Overhead costs are not in proportion to the production output because of the method they are using. This leads to inaccurate pricing and costing decisions. An Activity Based Costing System would help find the real relationship between the products produced and overhead.
Activity-based costing can be defined as the managers allocate costs depending on the quantity of resources a product or service consumed in the manufacture of goods and services. The activity based
This type of cost system further allows the activities to be specifically tracked in each of the company’s markets.
Wilkerson employs a Normal Cost System, which means that they use predetermined overhead rates along with actual costs for direct material and direct labor. Normal costing systems are appropriate when overhead costs are a relatively small percentage of total manufacturing costs and product diversity is limited. For Wilkerson, normal costing does not make sense. Overhead costs make up over 50 percent of total manufacturing costs and their product offering is relatively more diverse. This indicates that the current accounting system in place may be distorting costs significantly. Supporting data:
Glaser Health Products manufactures medical items for the health care industry. Production involves machining, assembly and painting. Finished units are then packed and shipped. The financial controller is interested to introduce an activity-based costing (ABC) system to allocate (or distribute) indirect costs to products. Indirect costs, as distinct from direct costs, cannot be unambiguously linked to specific products. The controller would like to calculate product costs based on ABC for planning and control, not inventory valuation.
This paper provides a brief presentation of Activity-Based Costing methodology, how is used as well as its short comings.
INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim to
With this system each customer’s order cost the same amount to complete causing orders with high profit limits to subsidized orders with low profit limits making it difficult for Super Bakery to know the true cost for an order. The company changed to the activity-based costing (ABC) system allowing the managers the ability to recognize the cost and profit margins for each sale. The ABC system associates the costs with the activities allowing managers the opportunity to access a system that allocates overhead costs that uses multiple bases. Costs can be traced back to each individual’s account regardless of the product provider letting managers know which products are profitable and which ones are not. The traditional costing system allocates cost to departments or jobs instead of overhead cost pools. The traditional costing system makes it difficult to know which activity or product is making a profit.
Nowadays, we know that activity based costing system assigns overhead costs to products or services products that using a two-stage process, which focuses on activities. ABC is a relatively new and very important topic in managerial accounting. ABC allows us to find a way that we could determine the profitability of every product, profitability of every customer we serve, and the profitability of our process. Contents in brief, first that comparing potential advantages of ABC versus traditional costing methods. The
Activity Based Costing is a method whereby costs are assigned to products or services based on the resource that they consume, it is an alternative of traditional accounting where business overheads, indirect costs such as lighting, heating, and market are allocated in proportion to an activity direct cost.
Activity-based management, activity-based costing and continuous improvement, all these help in the improvement of the efficiency in manufacturing, better control of overhead costs and the accurate costing of products. With this in mind, We disagree with the advice that Chuck Davis, the firm’s controller, gave Leonard Bryner. The traditional way of costing produce average costs that severely overstated or understated. Without the accurate costs, the firm would not be able to price properly their products and that would be damaging to the firm. With activity-based costing and management, all costs are accounted for with the help activity-drivers and overhead costs are decreased. In turn, the costs that the firm has for their products are more accurate and pricing is much easier.
At present PC4U apportions its production overheads based on direct labour hours. With a range of products available and opportunity for customising these products individually to meet the retailer’s needs, this report aims to assess the effectiveness of this traditional method of allocating production overheads. It will discuss the drawbacks of the current approach used by PC4U, as well as an alternative approach in the Activity-Based Costing system, which “is intended to overcome the weakness of the traditional method by having various pools of costs and then allocating each pool’s costs on the basis of its root cause.”(Averkamp 2007) As well as comparing the benefits and drawbacks of these costing systems to determine what recommendations should be given regarding the approach PC4U should adopt, the report shall also discuss the impact an activity based management system may have on the company.
In order to implement the Activity based management approach, the Company needs to have in place the cost of production/business processes, the cost of non-value-added activities, performance measures, cost objects and the cost drivers.