Iv facilit ysustaining costs costs of act ivit ies

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Unformatted text preview: (iii)Product­sustaining costs or service­sustaining costs: costs of activit ies undertaken to support individual products or services regardless of the number of unit s or batches in which the units are produced. (iv) Facilit y­sustaining costs: costs of act ivit ies that cannot be traced to individua l products or services but support the organizat ion as a who le. 5­6 It is important to classify costs into a cost hierarchy because costs in different cost pools relate to different cost­allocat ion bases and not all cost­allocat ion bases are unit­level. For example, an allo cation base like setup hours is a batch­level allocat ion base, and design hours is a product­sustaining base, both insensit ive to the number o f unit s in a batch or the number o f units o f product produced. If costs were not classified into a cost hierarchy, the alternat ive would be to consider all costs as unit­level costs, leading to misallocat ion of those costs that are not unit­level costs. 5­1 5­7 An ABC approach focuses on activit ies as the fundamental cost objects. The costs of...
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