Question

Lake City Kayak Company manufactures three styles of kayaks. They are in the process of classifying their costs into a cost hierarchy to get a better understanding of the cause and effect relationships between the various costs and drivers. The manufacturing facility is rented, and each style of kayak uses different machinery for production. What type of costs would these be in their cost hierarchy?

Answer 1

The costs of renting the manufacturing facility and the different machinery used for each style of kayak would be classified as facility-level costs in the cost hierarchy.

Step-by-step explanation:

In cost accounting, costs are often classified into a hierarchical structure known as a cost hierarchy. This allows businesses to better understand the cause and effect relationships between various costs and their drivers. In the case of Lake City Kayak Company, the costs of renting the manufacturing facility and the different machinery used for each style of kayak would fall under the category of facility-level costs.