Question

amherst metal works

ABC systems commonly use a cost hierarchy with four levels to identify cost-allocation bases that are cost drivers of the activity cost pools: (1) Output unit-level costs: the costs of activity performed on each individual unit of a product or service. (2) Batch-level costs: the costs of activities related to a group of units of a product or service. (3) Product-sustaining costs (service-sustaining costs): the costs of activities undertaken to support individual products or services, regardless of the number of units or batches in which the units are produced or services provided. (4) Facility-sustaining costs: the costs of activities that support the organization as a whole. Exercise 5-18: SharpPitch, Inc. manufactures karaoke machines for several well-known companies. The machines differ significantly in their complexity and their manufacturing batch sizes. Classify the following costs were incurred during the year as output unit-level, batch-level, product sustaining, or facility-sustaining: a. Indirect manufacturing labor costs such as supervision that supports direct manufacturing labor, $950,000 b. Procurement costs of placing purchase orders, receiving materials, and paying suppliers related to the number of purchase orders placed, $675,000 c. Cost of indirect materials, $180,000 d. Costs incurred to set up machines each time a different product needs to be manufactured, $450,000 e. Designing processes, drawing process charts, and making engineering process changes for products, $315,000 f. Machine-related overhead costs such as depreciation, maintenance, and production engineering. $975,500 (These resources relate to the activity of running the machines.) 8. Plant management, plant rent, and plant insurance, $578,000 Illustration: Plastim manufactures two types of lenses for Giovanni: a simple lens called S3 and a complex lens called CS. Under the control

Answer 1

Ans.

Classification of each of the cost incurred by SharpPitch, Inc. as output unit-level, batch-level, product-sustaining, or facility-sustaining costs.

a) Output unit-level costs

Indirect manufacturing labor costs such as supervision that support direct manufacturing labor amounting $ 950,000 is output unit-level costs as it increases if output units increased and decrease if output unit decreases.

b) Batch-level costs

Procurement costs of placing purchase orders, receiving materials, and paying suppliers related to the number of purchase orders placed, $675,000 is batch - level cost as this is the cost of activities related to the group of units of a product and not the individual unit.

c) Output unit-level costs

Cost of indirect materials of $180,000 is an output unit-level costs because it change when machine or labor hours change (which are unit level cost)

d) Batch-level costs

Costs incurred to set up machines each time a different product needs to be manufactured,$450,000 is a batch - level cost as this is the cost related to group of units of a product.

e) Product - sustaining cost

Designing processes, drawing process charts, and making engineering process changes for products, $315,000 is classify as product sustaining cost because these costs are related to the activities which support individual product and not the number of units or batches in which the units are manufactured.

f) Output unit-level costs

Machine-related overhead costs such as depreciation, maintenance, and production engineering, $975,500 is an output unit - level cost as they can be change if units produced are change.

g) Facility-sustaining costs

Plant management, plant rent, and plant insurance, $578,000 is considered as facility - sustaining costs as these activities not support individual product or a group but  it support the organization as a whole.