Unit-level activity definition
/What is a Unit-Level Activity?
A unit-level activity is an action that occurs whenever a unit is manufactured. This activity is a volume-based cost driver, since the amount that occurs will vary in direct proportion to the number of units produced. Direct materials and direct labor are associated with unit-level activities. In the cost hierarchy within an activity-based costing system, a unit-level activity is the lowest level. The cost hierarchy is as follows, beginning with the lowest level:
Unit-level activities
Customer-level activities
The costs associated with unit-level activities can be considered variable costs, since they change in direct proportion to changes in the associated units being produced.
Example of a Unit-Level Activity
An example of a unit-level activity is applying paint to a single manufactured product. Each time one product unit is completed, paint must be applied individually, and the amount of paint and labor used directly varies with the number of units produced. Thus, the activity (painting) is performed separately for each unit, making it a classic unit-level activity.