Refer to the data in Problem 6-22, HealthCare 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. 

Problem 6-22

HealthCare Products is organized functionally into three divisions: Operations, Sales, and Administrative. Purchasing, receiving, materials and production control, manu- facturing, factory personnel, inventory stores, and shipping activities are under the control of the vice-president for operations. Advertising, market research, and sales are the responsibility of the vice-president for sales. Accounting, budgeting, the firm's computer center, and general office management are delegated to the con- troller (Administrative). The following cost categories are found in the company as a whole:

Required: 

1. Using preliminary stage cost drivers, explain how individual items of costs will be traced to activity groupings. 

2. Using primary stage cost drivers, show how the costs should be related to products. 

3. Explain why it is necessary to use preliminary stage and primary stage cost drivers.

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(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. (j) Electricity for the Assembly Department. (k) Lost materials (scrap) in the Machining Department. (1) 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.