Cost hierarchy
Cost hierarchy classifies activities in ABC into four levels — unit, batch, product-sustaining, and facility-sustaining — each triggered by a different cause and needing its own cost driver.
Also known asactivity hierarchy
FrameworkActivity-based costing (ABC)
See it move
A stacked bar shows four hierarchical levels of cost used in activity-based costing, from the base upwards: unit level, batch level, product-sustaining, and facility-sustaining. Unit-level costs scale with every item produced, batch-level costs arise once per production run, product-sustaining costs are incurred for each product line, and facility-sustaining costs support the whole factory and are not allocated to individual products.
Check yourself
In activity-based costing, a machine must be adjusted each time a new production run of Product Z begins. This adjustment takes the same time and cost regardless of whether the batch contains 50 units or 5,000 units. At which level of the cost hierarchy does this adjustment cost belong?