ACCOUNTG 222 Study Guide - Final Guide: Resource Consumption, Expense, Activity-Based Costing
27 Feb 2014
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Document Summary
Traditional cost systems rely exclusively on allocation bases that are driven by the volume of production. On the other hand, activity-based costing defines five levels of activity unit-level, batch-level, product-level, customer-level, and organization-sustaining that largely do not relate to the volume of units produced. The costs and corresponding activity measures for unit-level activities do relate to the volume of units produced; however, the remaining categories do not. These levels are described as follows:2: unit-level activities are performed each time a unit is produced. The costs of unit-level activities should be proportional to the number of units produced. For example, tasks such as placing purchase orders, setting up equipment, and arranging for shipments to customers are batch-level activities. They are incurred once for each batch (or customer order). Costs at the batch level depend on the number of batches processed rather than on the number of units produced, the number of units sold, or other measures of volume.
