After a study of its processes, a firm determines it has the following 4 overhead cost pools related to the production of its 2 products: Set-up, Shipping, Product design, and Plant utilities and administration.
Both products are produced in the same facility using the same equipment. Product XYZ is a higher volume product that takes a relatively small amount of machine-time to produce, while Product ABC is a lower volume product that takes a significantly higher amount of machine-time. Also, Product XYZ requires very little set-up time, while Product ABC requires a more time-consuming set-up. Both products are shipped in a similar way, with each shipment requiring a similar amount of work.
Based on this information, determine the hierarchy level for each cost pool and an appropriate allocation base for each pool.
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Cost Pool
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Hierarchy Level
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Allocation Base
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Setup
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Shipping
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Product design
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Plant utilities & administration
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