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

Exercise 48

Activity Levels and Cost Drivers Al’s Speedy Gourmet, a small hamburger shop, has identified the following resources used in its operations (assume each customer’s order is a batch for this example):

a. Bread   f. Advertising for Triple-Burger special

b. Hourly help  g. Salary for the store managers

c. Store rent h.  Utilities

d. Ground beef  i. $1-off-coupon for each order

e. Catsup j. Bags for each order

Required

1. Classify its costs as unit-level, batch-level, product-level, or facility-level costs.

2. Suggest a proper driver for each of the above items.

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.