Advanced Company is installing an ABC system and needs to know the level of a fe

Question

Advanced Company is installing an ABC system and needs to know the level of a few activities. Advanced has already determined which costs are directly traceable to product and customers. Only those costs left to be allocated/assigned are of concern here.

Advanced Company produces two products—high-tech global positioning systems (GPS) and low-tech compasses—using portions of the same assembly line. One design department handles the design of both products. The GPSs are made in batches of 50, while the compasses are made in batches of 5,000. GPSs each require a one-hour inspection, while compasses each require a one-minute inspection.

Indicate whether the following two activities are:

A. Unit level

B. Batch level

C. Product level

D. Customer level

E. Facility sustaining or Organization sustaining

Setup machines (see answer choices immediately above)

Have the annual financial statements audited (see answer choices immediately above)

Explanation / Answer

Here two products are manufactured GPS and low tech compass: Activities related to
1). Designing by design department is a PRODUCT LEVEL ACTIVITY because it relates to a particular product.
2). Manufacturing of products is a BATCH LEVEL ACTIVITY because manufacturing of these products are done in batches of 50 for GPS and 5000 for compass.

So SETUP MACHINE IS A BATCH LEVEL because production is done is batches and machine setup are done per batch of production.

HAVE THE ANNUAL FINANCIAL STATEMENTS AUDITED IS A ORGANIZATION SUSTAINING activity, because it neither depends on a particular product, nor a customer or Unit or Batch leve. Financial statements are shows the records and financial position of the whole organization and get them audited is a key to sustaining confidence in both the company and financial system.

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