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

Exercise 50

Activity Levels and Cost Drivers Richardson Industries manufactures industrial tools after creating a mold for each newly designed tool. Richardson personally inspects every unit during the trial run of a new mold and 10 percent of the units manufactured in the first three batches. Some of the activities of the firm follow:

a. Designing molds f. Requesting and moving materials

b. Creating molds g. Machining

c. Inspecting molds h. Insuring equipment

d. Modifying molds i. Paying suppliers

e. Setting up production j. Heating the factory

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 3

Unit-level activity is an activity which is performed for unit object. Batch-level activity is an activity which is performed for either group of units or some group of products. Product-level activity is an activity which is performed for production of specific product category. Facility-level activity is an activity which is performed as general activity in the premise.