Question

Anner Manufacturing is developing an activity-based costing system to improve overhead cost allocation. One of the first steps in developing the system is to classify the costs of performing production activities into activity cost pools.
Classify the cost of each activity in the following list into unit-, batch-, product-, or facility-level cost pools:

1. Labelling and packaging
2. Plant Security
3. Sales commission
4. Supplies

Answer 1

Answer:

When you collect all the costs related to performing a particular activity (e.g. producing a product), you have created an activity cost pool. This helps to get an accurate estimate of the cost of that activity or task and is mostly applied in activity-based costing system. Different activities may require different cost pools.

The activities below are thus classified accordingly:

1. Labelling and Packaging - Batch Cost Pool

2. Plant Security - Facility Level Cost Pool

3. Sales Commission - Product Cost Pool. (This is incurred in selling the product and so must be pre-built into the price of the product.

4. Supplies - Unit Level Cost Pool (Supplies are incidental items that are expected to be consumed in the near future. Examples are paper clips that you use in the daily workings of the business. Supplies are differ from Materials which refer to the raw stock from which finished goods are made. Examples of material are raw materials, components, sub-components, and production supplies. Materials would go under Product Cost Pool.

Cheers!