Question

4. Activity-based costing and customer profitability analysis both use cost hierarchies to categorize costs. Which of the following cost hierarchies is only specific to a customer profitability analysis?

1. Batch level costs
2. Distribution channel costs
3. Output unit-level costs
4. Facility Sustaining cost

Answer 1

The correct answer is "B": Distribution channel costs.

Reason: Batch level costs, output unit-level costs and facility sustaining costs are the cost heirarchies which are common for both activity based costing as well as Customer profitability analysis. However distribution channel costs is only relevant for customer profitability analysis and is not relevant for ABC.

Cost heirarchies for customer profitability analysis:

1. Customer output unit-level costs

2. Customer sustaining costs

3. Customer batch level costs

4. Distribution channel costs

Cost heirarchies for activity based costing:

1. Batch level activity

2. Organization facility level activity

3. Product level activity

4. Unit level activity