Question

Advanced Company is installing an ABC system and needs to know the level of a few activities. Advanced has already determined which costs are directly traceable to product and customers. Only those costs left to be allocated/assigned are of concern here.

Advanced Company produces two products—high-tech global positioning systems (GPS) and low-tech compasses—using portions of the same assembly line. One design department handles the design of both products. The GPSs are made in batches of 50, while the compasses are made in batches of 5,000. GPSs each require a one-hour inspection, while compasses each require a one-minute inspection.

Indicate whether the following two activities are:

A. Unit level

B. Batch level

C. Product level

D. Customer level

E. Facility sustaining or Organization sustaining

30. Enter customer orders (see answer choices immediately above)

31: Prepare annual financial statements (see answer choices immediately above)

Answer 1

30. Enter customer orders – Customer level activity. This cost is incurred at customer level

31. Prepare annual financial statements – Facility sustaining or organisation sustaining. The cost is incurred as part of administrative cost and hence it is facility sustaining cost. These costs cannot be identified at product or customer level.

Explanation:

· Unit level – unit level costs are the costs which are incurred at unit level for example: direct labor, direct material, they vary with each unit produced.

· Batch level – Batch level costs are the costs which are incurred at batch level for the manufacture. For example : batch set up, machine set up , purchase orders, etc

· Product level – These costs are incurred at product level for example : product advertising, warehousing facilities

· Customer level – These costs are incurred at customer level order processing

· Facility sustaining or organisation sustaining – These costs are not recognised with the particular product manufactured and are incurred at organisation level in supporting the manufacture. For example: Rent, building depreciation, office maintenance cost, Admin costs, etc.