Astro Corporation, a furniture manufacture, uses an activity-based costing syste

Question

Astro Corporation, a furniture manufacture, uses an activity-based costing system. It has identified the following selected activities:

Setting up machines for a particular batch of production.

Inspecting wood prior to using it in production.

Packaging completed furniture in boxes for shipment.

Inspecting completed furniture for quality control.

Purchasing TV time to advertise a particular product.

Incurring property taxes on factory buildings.

Incurring paint cost for furniture produced.

Classify each activity as a unit-level, batch-level, product level, or facility –level activity.

Identify an appropriate cost driver (allocation base) for each of the activities

Explanation / Answer

S. No. Activities Classification Appropriate Cost Driver 1 Setting up machines for a particular batch of production. Batch-level Machines Hours Used per Batch 2 Inspecting wood prior to using it in production. facility –level No. of Labours hours Used / Per square Feet of Woods used in Different Batch or Products 3 Packaging completed furniture in boxes for shipment. Product Level Square Feet of packaging material Used / or no of Boxes Used 4 Inspecting completed furniture for quality control. unit-level No. Of Labour Hours Used for Inspection 5 Purchasing TV time to advertise a particular product. product level as per Sales Mix or Sales Value of different products Produced 6 Incurring property taxes on factory buildings. facility –level As per square feet of Factory used by the Products 7 Incurring paint cost for furniture produced unit-level No. of Labour hours used for painting Jobs

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