Glaser Health Products Essay

Glaser Health Products of Ranier Falls, Georgia needs assistance in evaluating and classifying be in evidence to implement an activity-based costing musical arrangement. As stated in the case, these costs go forth be used for planning and control decisions rather than inventory valuation. The activity-based costing ashes will provide cave in allocation of Glasers command processing overhead time costs rather than a system to look at the cost drivers or the activities that their overhead costs comprise. Glasers general structure of an activity-based costing model should consist of cost objects, activities, consumption of resources, and cost. Activity-based costing changes the rules of the game since it changes some of the key measures that managers use for their decision making and for evaluating individuals performance (Accounting4management.com). In order for Glaser to implement a successful activity-based costing system management must take a look at their overhead costs and justify whether or non they have enough overhead to be worrying about. While we do not know Glasers monetary value of their overhead costs, it seems that they have several divisions with a large amount of cost categories management must consider.The three master(prenominal) divisions of Glaser Health Products are Operations, Sales, and Administrative. Under distributively division are costs categories that have been divided up to help management determine where they belong. (Appendix A identifies each of the costs with the appropriate division). Next, management must identify the big overhead cost in order to determine whether or not they want to assign some or a bunch of overhead using the activity-based costing system. I suggest that Glaser creates an activity-based costing system that allocates, with a minimal amount of effort, a large portion of their overhead. For instance, management is correct in identifying each of the costs using four different activities. These includ e unit-level activities, batch-level activities, product-level activities, and facility-level activities. This is a great system because the less activities Glaser can use to do this, the easier the accounting will be for management.These four activities will allowGlaser 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 conjoin 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 set up 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 military issue of things such as direct labor hours, number of batche s, 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 initially assigned to a primary stage activity center and only need a superstar assignment process, and are traceable to specific products but often use a cost driver. Product-level activity center costs whitethorn be associate to a specific product or grouped by activities before being assigned to products at the primary stage. Facility-level activity center costs may go through multiple preliminary stages before being assigned to products (Schneider, 2012). It is necessary to use a preliminary stage cost driver because this system assigns costs from activities to other activities.On the other hand, primary stage cost drivers is used to assig n costs from activities to the cost objectives. This process eliminates distortions in cost allocations to products that resultant role from production complexity (Schneider, 2012). Actually sitting down and laying out an activity-based costing system for a real company is much more unwieldy than a typical textbook ABC problem. Determining what causes a cost to occur is much more difficult than it originally might seem (Krupnicki & Tyson, 1997). Overall, I think that managements decision to implement an activity-based costing system is going to work in their favor. The decision to implement ABC is often driven by the need to improve customer profitability analysis, to gain more accurate cost information for pricing or to prepare relevant budgets (Cohen, Venieris, & Kaimenaki, 2005).In this case, Glaser wants to identify costs used for planning and controldecisions rather than for inventory valuation. Glaser is likely to see many benefits from implementing an activity-based costin g system such as better profitability measures, better decision-making, process improvement, cost estimation, and cost of unused capacity. The activity-based costing system will provide better allocation of Glasers overhead costs rather than a system to look at the cost drivers or the activities that their overhead costs comprise.Referenceshttp//www.accounting4management.com/implementing_activity_based_costing.htm Schneider, A. (Ed.). (2012). Managerial Accounting Decision Making for the Service And Manufacturing Sectors. San Diego, CA Bridgepoint Education. Krupnicki, M., & Tyson, T. (1997). Using ABC to Determine the Cost of Servicing Customers. Management Accounting, 79(6), 40-46. Retrieved from http//search.proquest.com/docview/229739140?accountid=32521 Cohen, S., Venieris, G., & Kaimenaki, E. (2005). ABC Adopters, Supporters, and Deniers And Unawares. Managerial Auditing Journal, 20(8), 981-1000. Retrieved from http//search.proquest.com/docview/27453714?accountid=32521