Final answer:
Costs can be categorized as Output-unit, Batch-level, Product-sustaining, or Facility-sustaining. Fixed costs like rent and property tax are Facility-sustaining, while costs varying with output are Output-unit. Batch-level and Product-sustaining costs are linked to the production of batches and supporting specific products, respectively.
Step-by-step explanation:
In cost accounting, costs can be classified depending on how they are incurred. These classifications help businesses understand cost behavior and how it relates to different production levels. Here is how each listed activity or cost can be classified:
- Setting up equipment - Batch-level (B)
- Machine Depreciation - Facility-sustaining (F)
- Designing a product - Product-sustaining (P)
- Power to run processing equipment - Output-unit (U)
- Rent for the factory building - Facility-sustaining (F)
- Spare parts management - Batch-level (B)
- Property tax on the factory building - Facility-sustaining (F)
- Shipping customer orders - Batch-level (B)
- Setup costs - Batch-level (B)
- Property insurance on the plant - Facility-sustaining (F)
- Advertising a product - Product-sustaining (P)
- Heating the factory building - Facility-sustaining (F)
Fixed costs such as rent, property tax, and insurance do not change with the level of production, while variable costs such as power to run processing equipment change with the output level. Batch-level costs, like setting up equipment and shipping orders, are incurred for each batch produced. Product-sustaining costs, such as designing a product and advertising, relate directly to supporting specific products.