clasification - nor can managers control them at the unit...

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The classification provides managers a structured way of thinking about the relationships between  activities and the resources they consume. In contrast, traditional volume-based costing recognizes  only unit-level costs.  Failure to recognize this classification of activities is one of the reasons that  volume-based cost allocation causes distortions in product costing. As indicated earlier, allocating all overhead costs by unit-based cost drivers can send false signals to  managers: Dividing batch-, product-, or facility-level costs by the number of units produced gives the  mistaken impression that these costs vary with the number of units.  The resources consumed by  batch-, product-, and facility-level supporting activities do not vary at the unit level
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Unformatted text preview: , nor can managers control them at the unit level. The number of activities performed at the batch level goes up as the number of batches rises—not as the number of units within the batches changes. Similarly, the number of product-level activities performed depends on the number of different products —not on how many units or batches are produced. Furthermore facility-sustaining activity costs are not dependent upon the number of products, batches, or units produced. Companies can control batch-, product-, and facility-level costs only by modifying batch-, product-, and facility-level activities....
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  • Fall '11
  • -
  • traditional volume­based costing, unit­level costs. Failure, facility­level costs, unit­based cost drivers

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