Question

Describe unit-level, batch-level, product-level, and organizational sustaining–level activities and how they differ.

Give two or three examples of activities at each level.

Answer 1

Under ABC, indirect costs are accumulated under different activities so that activity centered

cost pools are created.

Unit level activities are the activities that are carried out on each unit of a product or service.

Examples are:

Energy supply

Depreciation on factory machinery

Repairs and maintenance of factory machinery

Costs related to unit level activities are incurred each time a unit is produced and the total

of such cost increases as the number of units increases.

Batch level activities:

These are activities related to a group of units of products or services

Examples are:

Production set ups

Quality control

Purchasing and related activities for a batch, whatever the size of the batch.

Cost related to batch level activities increase with the number of batches.

Product level activities:

These are activities performed to support individual products or services regardless of the

number of units or batches produced.

Examples are:

Designing

Product testing

Organization sustaining level activities:

These are activities that cannot be related to individual units/batches/products but support

the organization as a whole.

Examples are:

General administration

Security and insurance