Question

The classification of cost drivers into general levels of activity, volume, batch, product, and so

on is known as:

A.

cost allocation.

B.

value-added costing.

C.

a cost hierarchy.

D.

cost driver management.

Answer 1

Solution:- The Correct option is (C). The classification of cost drivers into general levels of activity, volume,batch,product, and so on is known as cost hierarchy.

Explanation:-Cost Hierarchy is a classification system that assists in the allocation of costs.It helps to allocate costs more precisely. Under the Cost Hierarchy ,a company categorizes cost based on activity levels.Thus , the classification of cost drivers into general levels of activity, volume,batch,product, and so on is known as cost hierarchy. So, the correct answer is Cost Hierarchy.

Whereas Cost Allocation refers to the process of identifying and assigning costs to the various cost objects.So Cost Allocation is not the valid answer.

and valiue added costing is one that improves the quality of a product or service, or enhances customer's perception of that product or services. Another way of think of a Value Added Cost is an expense that customers are willing to pay for.So valiue added costing is also not valid answer.

Customer Driver Management :- Cost Drivers are the structural determinants of the cost of an activity, reflecting any linkages or interrelationships that affect it.So customer driver management is also not valid answer.

Conclusion:-The correct answer is Cost Hierarchy.