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Product Cost Hierarchy

For the following list of costs, indicate by the appropriate letter which category of activities each cost applies to: unit level (U), batch level (B), product line (P), or facility support (F):
1. Machine fine-tuning adjustment cost (required after the production of each unit)
2. Salary of vice president of finance
3. Machine inspection cost (required after the completion of each day's production)
4. Cost of the external audit firm
5. Direct labor
6. Product testing cost (performed at the start of each day's production)
7. Direct materials
8. Factory security cost
9. Machine straight-line depreciation cost (Generally, machines are dedicated to producing a particular type of product.)
10. Warehousing cost (Each type of product has its own warehouse.)
11. Employee training cost (Training is generally specific to different types of products.)

Solution Preview

Let us understand the basics first:

1. Unit level costs
Costs that are incurred for every unit of product manufactured or service produced.

2. Batch Level costs
Costs that are incurred for batch of product manufactured or service produced
E.g. Set Up costs

3. Costs that are incurred for ...

Solution Summary

Costs are categorized and discussed.