Questions: Required: For each of the following activities, indicate the appropriate category (unit, batch, product, or facility level) and suggest a possible cost driver for each pool. Factory utilities Machine setups Research and development for a new product Sanding rough edges of the product Packaging the product for shipment Developing new packaging for a new product line Maintenance on equipment Assembling the product's component parts Materials handling costs Quality control testing

Required: For each of the following activities, indicate the appropriate category (unit, batch, product, or facility level) and suggest a possible cost driver for each pool. Factory utilities Machine setups Research and development for a new product Sanding rough edges of the product Packaging the product for shipment Developing new packaging for a new product line Maintenance on equipment Assembling the product's component parts Materials handling costs Quality control testing
Transcript text: Required: For each of the following activities, indicate the appropriate category (unit, batch, product, or facility level) and suggest a possible cost driver for each pool. Factory utilities Machine setups Research and development for a new product Sanding rough edges of the product Packaging the product for shipment Developing new packaging for a new product line Maintenance on equipment Assembling the product's component parts Materials handling costs Quality control testing
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Solution

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To categorize each activity and suggest a possible cost driver, we need to understand the nature of each activity and how costs are incurred. Here are the categories and explanations for each activity:

  1. Factory utilities

    • Category: Facility-level
    • Cost Driver: Square footage of the facility or machine hours
    • Explanation: Factory utilities are costs that support the entire facility and are not directly tied to specific units, batches, or products. They are incurred to maintain the facility's operations.

  2. Machine setups

    • Category: Batch-level
    • Cost Driver: Number of setups or setup hours
    • Explanation: Machine setups are required each time a new batch of products is produced. The cost is associated with preparing machines for production runs.

  3. Research and development for a new product

    • Category: Product-level
    • Cost Driver: Number of research hours or project costs
    • Explanation: R&D costs are incurred to develop new products and are specific to the product being developed.

  4. Sanding rough edges of the product

    • Category: Unit-level
    • Cost Driver: Number of units produced or labor hours
    • Explanation: Sanding is a process applied to each unit, and the cost varies with the number of units produced.

  5. Packaging the product for shipment

    • Category: Unit-level
    • Cost Driver: Number of units packaged or packaging hours
    • Explanation: Packaging is done for each unit, and costs are incurred per unit packaged.

  6. Developing new packaging for a new product line

    • Category: Product-level
    • Cost Driver: Number of design hours or project costs
    • Explanation: This activity is specific to a new product line and involves costs related to designing and developing packaging.

  7. Maintenance on equipment

    • Category: Facility-level
    • Cost Driver: Machine hours or maintenance hours
    • Explanation: Maintenance is necessary to keep equipment operational and supports the entire facility's production capabilities.

  8. Assembling the product's component parts

    • Category: Unit-level
    • Cost Driver: Number of units assembled or assembly hours
    • Explanation: Assembly is performed on each unit, and costs are incurred per unit assembled.

  9. Materials handling costs

    • Category: Batch-level
    • Cost Driver: Number of batches or weight/volume of materials handled
    • Explanation: Materials handling is often associated with moving materials for each batch of production.

  10. Quality control testing

    • Category: Batch-level
    • Cost Driver: Number of tests or testing hours
    • Explanation: Quality control testing is typically performed on batches to ensure product quality, and costs are incurred per batch tested.
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