Product-level activity definition

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What is a Product-Level Activity?

A product-level activity is an action taken in support of a specific product or activity. These actions are taken irrespective of the amount of production or service volume associated with a product. Thus, a business might not produce any units of a new product at all, and yet will still incur product-level activities. For this reason, product-level activities can be considered sunk costs.

Within the cost hierarchy in an activity-based costing system, product-level activities are positioned near the middle, as noted in the following hierarchy listing:

  1. Unit-level activities

  2. Batch-level activities

  3. Product-level activities

  4. Facility-level activities

Related AccountingTools Courses

Activity-Based Costing

Activity-Based Management

Cost Accounting Fundamentals

Examples of Product-Level Activities

The more common product-level activities used in activity-based costing are as follows:

  • Product design. Activities related to creating and modifying product specifications and features.

  • Product testing. Testing product prototypes or finished goods to ensure they meet quality and performance standards.

  • Product engineering. Developing technical processes and production methods specific to each product.

  • Product line management. Managing and maintaining the overall product portfolio, including pricing, lifecycle decisions, and strategy.

  • Bill of materials maintenance. Creating and updating the list of components required to manufacture a specific product.

  • Product-specific procurement. Purchasing materials or parts unique to a particular product.

  • Regulatory compliance. Ensuring products meet industry-specific legal or environmental standards.

  • Product marketing. Developing marketing strategies and materials tailored to specific products.

These activities are driven by the number or complexity of products, not by the volume of units produced or batches processed.