Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 49

Activity Levels and Cost Drivers Shroeder Machine Shop has the following activities:

a. Machine operation f. Machine maintenance

b. Machine setup g. Product design

c. Production scheduling h. Parts administration

d. Materials receiving i. Final inspection

e. Research and development j. Materials handling

Required

1. Classify each of the activities as a unit-level, batch-level, product-level, or facility-level activity.

2. Identify a proper cost driver for each activity in requirement 1.

Step 1 of 4

General level of cost hierarchy in Activity based costing system:

1. Unit level Activity: These activities are performed for each individual product or service. If a single unit of a product or service is not produced than these cost will not be incurred. Hence, it is called as volume based activity.

2. Batch level Activity: These activities are performed in the batches. Batch level activities are not based on units since these activities are performed due to the batches. Example of batch level activity is set up of machines, handling materials etc.