Question

Marion Manufacturing uses an activity-based costing system. The company produces Model X and Model Y. Information relating to the two products is as follows:

	Model X	Model Y
Units produced	20,000	40,000
Machine hours	8,000	10,000
Direct labor hours	14,000	16,000
Engineering labor (hours)	1,000	1,400
Setups	40	60

The following costs are reported:

Engineering	$ 48,000
Setups	100,000
Machine-related overhead	144,000

Machine-related overhead would be classified as a

a.unit-level activity.

b.facility-level activity.

c.batch-level activity.

d.product-level activity.

Answer 1

Answer:

Option a: Unit level activity

Explanation:

Maintenance related overheads are apportioned on the basis of machine hours and machine hours are directly related to number of units produced.

So, machine related overheads are classified as unit level activity.

Note:

Set up costs will be classified as batch level activity because set up costs are allocated on the basis of set ups. Each set up is based on number of batches.

Product and facility level costs are incurred on the basis of products and factories respectively.

Hence, option 'a' is correct and rest all are incorrect.

In case of any doubt, please feel free to comment.