The document discusses the levels of an activity-based costing (ABC) system. It explains that under ABC, costs are first assigned to activities and then traced to products. There are four levels of costs: unit, batch, product, and facility. Unit costs are directly proportional to the number of units produced. Batch costs are proportional to the number of batches produced regardless of batch size. Product costs can be traced to a product line. Facility costs are incurred for the plant as a whole and cannot be traced to specific units or products. The document provides examples for each cost level.

1. Activity Based Cost Hierarchy

2. ABC System
Under the Activity Based Costing System, first the
costs are assigned to activities and then they are
traced to products.

3. Cost Driver
A Cost Driver is a factor that generates costs.

4. According to the ABC System, costs are allocated
on the basis of activities. They are categorized on
four levels:
Unit Level Costs
Batch Level Costs
Product Level Costs

5. Unit Level Costs
• It includes the cost of activities performed to produce each
unit of a product or service.
• The costs are directly proportionate to the number of units
produced
• Example:
o Activity: Costs arising from Metal Coating
o Cost Driver: Machine Hours

6. Batch Level Costs
• It includes the cost of activities performed to produce a batch
(lot) of units rather than a single unit
• The costs are directly proportionate to the number of batches
produced, irrespective of the number of units in each batch
• The activities performed are performed once for each batch,
irrespective of the size of each batch
• Example:
o Activity: Purchase Ordering
o Cost Driver: Number of purchase orders

7. Product Level Costs
• It includes the cost of activities performed in relation to a
product portfolio rather than a single unit or batch
• The costs can be directly traced to a particular product line,
irrespective of the number of units or the size of batches
• Example:
o Activity: Product Designing
o Cost Driver: Number of designs

8. Facility Level Costs
• These costs occur regardless of the number of units, batches
or product lines produced.
• The costs are incurred in relation to the plant as a whole and
cannot be traced to a unit, batch or product line.
• Example:
o Activity: Depreciation on Plant
o Cost Driver: Value of plant/ Time Period

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