Roberta, Inc., manufactures elliptical machines for several well-known companies. The machines differ significantly in their complexity and their manufacturing batch sizes. The following costs were incurred in 2017:

Requirement 1. Classify each of the preceding costs as output unit-level, batch-level, product-sustaining, or facility-sustaining. Explain each answer (answer options are in bold on the cost-type row pick one).

Cost Item	Cost Type
a. Indirect manufacturing labor costs such as supervision that supports direct manufacturing labor, $935,000	(Batch Level, Facility-sustaining, Output unit-level, Product-sustaining)
b. Procurement costs of placing purchase orders, receiving materials, and paying suppliers related to the number of purchase orders placed, $650,000	(Batch Level, Facility-sustaining, Output unit-level, Product-sustaining)
c. Cost of indirect materials, $234,000	(Batch Level, Facility-sustaining, Output unit-level, Product-sustaining)
d. Costs incurred to set up machines each time a different product needs to be manufactured, $392,000	(Batch Level, Facility-sustaining, Output unit-level, Product-sustaining)
e. Designing processes, drawing process charts, making engineering process changes for products, $236,900	(Batch Level, Facility-sustaining, Output unit-level, Product-sustaining)
f. Machine-related overhead costs such as depreciation, maintenance, production engineering, $865,000 (These resources relate to the activity of running the machines.)	(Batch Level, Facility-sustaining, Output unit-level, Product-sustaining)
g. Plant management, plant rent, and plant insurance, $498,000	(Batch Level, Facility-sustaining, Output unit-level, Product-sustaining)

Pick one of the options in bold

Output unit-level costs are (costs that cannot be traced to individual products but support the company as a whole) (costs used to support individual products reegardless of the number of units or batches tested) (related to a group of units of the product. They are not related to the number of units tested.) (Related to the number of units tested; required for each unit tested.)

Bach-level costs are (costs that cannot be traced to individual products but support the company as a whole) (costs used to support individual products reegardless of the number of units or batches tested) (related to a group of units of the product. They are not related to the number of units tested.) (Related to the number of units tested; required for each unit tested.)

Facility-sustaining costs are (costs that cannot be traced to individual products but support the company as a whole) (costs used to support individual products reegardless of the number of units or batches tested) (related to a group of units of the product. They are not related to the number of units tested.) (Related to the number of units tested; required for each unit tested.)

Product-sustaining costs are (costs that cannot be traced to individual products but support the company as a whole) (costs used to support individual products reegardless of the number of units or batches tested) (related to a group of units of the product. They are not related to the number of units tested.) (Related to the number of units tested; required for each unit tested.)

Requirement 2. Consider two types of elliptical machines made by Roberta, Inc. One machine, designed for professional use, is complex to make and is produced in many batches. The other machine is simple to make and is produced in few batches. Suppose that Roberta needs the same number of machine-hours to make each type of elliptical and that Roberta allocates all overhead costs using machine-hours as the only allocation base. How, if at all, would the machines be miscosted? Briefly explain why. (Pick one of the options in bold in each statement)

The complex elliptical machine made in (few, many) batches will use (significantly less, significantly more, the same) bach-level overhead resources compared to the simple elliptical machine that is made in (few, many) batches. In addition, the complex machine will use (less, more) (facility-sustaining, product-sustaining) overhead resources because it is complex.

Because (each elliptical machine requires the same amount of machine-hours, the complex machine requires significantly more machine-hours than the simple machine, the simple machine requires significantly more machine hours than the complex machine),

(both the simple and the complex machines will be allocated the same amount of overhead costs per machine, the complex elliptical machine will be allocated a greater amount of overhead costs per machine than the simple machine, the simple machine will be allocated a greater amount of overhead costs per machine than the complex machine). if Roberta uses only machine-hours to allocate overhead costs to elliptical machines.

As a result, the complex elliptical machine will be (overcoster, properly costed, undercosted) and the simple machine will be (overcoster, properly costed, undercosted).

C. d. Indirect manufacturing labor costs such as supervision that supports direct manufacturing labor, $935,000 Procurement costs of placing purchase orders, receiving materials, and paying suppliers related to the number of purchase orders placed, $650,000 Cost of indirect materials, $234,000 Costs incurred to set up machines each time a different product needs to be manufactured, $392,000 Designing processes, drawing process charts, and making engineering process changes for products, $236,900 Machine-related overhead costs such as depreciation, maintenance, production engineering, $865,000 (These resources relate to the activity of running the machines.) Plant management, plant rent, and plant insurance, $498,000 g. Requirement 3. How is the cost hierarchy helpful to Roberta in managing its business? The cost hierarchy can be helpful to Roberta in managing its business through: O A. Reducing the number of indirect cost pools, creating less homogeneous indirect cost pools, allocating more indirect costs to cost objects, and identifying cost objects at the output unit-level. O B. Identifying the cost benefit of implementing a simple costing system. OC. Pricing and product mix decisions, cost reduction and process improvement decisions, design decisions, and planning and managing activities. OD. All of the above