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9 3 Activity-based Costing Financial and Managerial Accounting

unit level activity

Facility level costs are the costs which are related to company’s activities of maintaining its general operations. Examples are the costs to provide on electricity, cleaning, etc,. Inspecting is not a unit-level activity; it is a batch-level activity. Determine the overhead cost assigned to each product line using the plantwide rate computed inrequirement 1. Additional data from its two production departments follow.

What are the 4 levels of activity?

Four Levels of Activity

With activity-based costing, sometimes referred to as ABC, companies account for expenses by categorizing the source of the cost into one of four general groups: unit-based, batch-based, product-based, and facility-based costs.

Product‐line activities are those activities that support an entire product line but not necessarily each individual unit. Examples of product‐line activities are engineering changes made in the assembly line, product design changes, and warehousing and storage costs unit level activity for each product line. Manufacturing is the process of turning raw materials or parts into finished goods using tools, human labor, machinery, and chemical processing. Kohler defined an activity as a portion of work done by a specific part of the company.

Activity Based Costing (ABC)

GAME developed two specialized products. The first product is GLASSESong, a pair of sunglasses with a built-in music player. The other is CAPlayer, a golf cap with a built-in music player having a very short unobtrusive cord from the cap to the speakers.

These actions are taken every time a product group is made or processed, without consideration of the number of units produced. For instance, actions like issuing buying orders, installing machinery, logistics for raw materials, and delivering final products to clients are batch-level activities. A product level activity is any process that occurs for the development of an identifiable product or activity. Such activities will occur regardless of the units of production or service levels required from a business.

. For each activity, classify it as unit-level, batch-level,…

Assuming that AP is an efficient and competitive supplier, if the new department-based rates are used to price contracts, United and Leland will be unhappy. Discuss ways of reducing the consumption of those resources, if possible, and show willingness to partner with them to do so. If the price rise is going to be steep, perhaps offer to phase in the new prices. Other than for pricing, AP can also use the information from the department-based system to examine and streamline its own operations so that there is maximum value-added from all indirect resources. It might set targets over time to reduce both the consumption of each indirect resource and the unit costs of the resources.

If your factory produces several different types of widgets, each widget produced would constitute a different product line. So long as the final products are identical to one another and even slightly dissimilar to other products, they are the same product made on the same line. Textra Plastics produces parts for a variety of small machine manufacturers.

Measuring the Costs of Controlling and Improving Quality

Identifying the activities and creating cost pools for them is a one-time activity. Once all activity cost break ups are done, new activities can be added to existing pools and their costs assigned accordingly to the pools cost groups. In such business models, activity‐based costing is useful for assigning variable costs. Activity‐based costing works on the theory that the steps used in manufacturing anything are what decide the variable costs.

Which is an example of a unit level activity?

Unit‐level activities occur every time a service is performed or a product is made. The costs of direct materials, direct labor, and machine maintenance are examples of unit‐level activities.

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