How many levels of activity costs are in the cost hierarchy?

In the context of activity-based costing, the cost hierarchy is a framework that categorizes costs based on the level of activity involved in their incurrence. There are typically four levels in the cost hierarchy:

1. Unit-level costs: Costs that are incurred for each unit of product produced. These are direct costs that can be traced back to a specific product directly, such as materials and labor.

2. Batch-level costs: Costs incurred for a batch of products rather than for individual units. These might include costs related to setting up machinery for a specific batch or quality inspections that occur by batch.

3. Product-level costs: Costs that are incurred to support the entire product line, regardless of how many batches or units are produced. This includes costs related to product design, research and development, and marketing.

4. Facility-level costs: Costs that are incurred to support the overall operation of the facility or organization. These costs do not vary with the level of production or the number of products manufactured and include expenses such as utilities, property taxes, and facility maintenance.

Understanding these four levels helps in allocating costs more accurately, leading to better pricing and profitability analysis. In activity-based costing, recognizing the different levels of activity costs