Classifying costs and identifying the appropriate cost driver
Lakeshore Manufacturing incurred the following costs during 2007 to produce its high-quality precision instruments. The company used an activity-based costing system and identified the following activities.
1. Materials handling.
2. Inventory storage.
3. Inspection of each batch produced.
4. Salaries of receiving clerks.
5. Setup for each batch produced.
6. Insurance on production facilities.
7. Depreciation on manufacturing equipment.
a. Classify each activity as a unit-level, batch-level, product-level, or facility-level activity.
b. Identify an appropriate cost driver (allocation base) for each activity.