Question

A company uses the manufacturing cost hierarchy to allocate costs to various activities. During the past year, it has incurred:

Costs	Description
725,000	Product Development Costs
475,000	Materials handling costs
1,250,000	Production line labor costs
450,000	Production setup costs
250,000	Power costs (for cooling beer and running equipment)
875,000	Manufacturing facility management costs

A. Using the manufacturing cost hierarchy, what is the total cost that would be classified as unit-level activity costs?

B. Using the manufacturing cost hierarchy, what is the total cost that would be classified as batch-level activity costs?

C. Using the manufacturing cost hierarchy, what is the total cost that would be classified as product-level activity costs?

D. Using the manufacturing cost hierarchy, what is the total cost that would be classified as facility-level activity costs?

Answer 1

Based on the cost driver assigned to each expense, the same can be assigned as unit level, batch level, product level or facility level. Thus, below table has been arrived at:

A. Unit level costs = $ 725,000 If an expense can be assigned to each unit produced or manufactured.

B. Batch level cost = $ 1,700,000 If an expense applies to the whole batch of production and not to particular unit produced or manufactured

C. Product Level cost = $ 725,000 If an expense meant for whole production level.

D. Facility level cost = $ 875,000 If an expense related to the facility.