Question

1. Light Beer Company operates many bottling plants around the world. At its Dubuque plant, where five different brands are bottled, the following costs are incurred a year to produce 4,000,000 cans of beer.

REQUIRED:

Classify each cost below as unit-level, batch-level, product-sustaining, or facility-sustaining.

1. New-product development costs for “Light Beer Plus”.
2. Incoming material handling costs (costs of inspecting & handling concentrates, bottles, packages, etc.)
3. Incoming material purchase costs (can be directly traced to individual products being bottled and packaged and is purely variable with output level).
4. Plant supervision and safety costs (these costs are for plant infrastructure management, land costs, and plant insurance).
5. Energy costs of production equipment where the cost driver is hours of bottling time.

Answer 1

a) New product development costs will depend upon the per unit cost of the product being produced to cope up with the new change being made by new product entry, threfore, it will be classified as unit-level costs.

b) Handling costs are incurred for the sustainability of products and to check whether they are in good state or not , so it will be classified as product sustaining costs.

c) Purchase cost is applicable in calculating per unit sales value so, it will also be unit-level costs.

d) Plant supervision and safety costs take place for the well-being of employess by providing them various facilities, therefore, it will be classified as facility-sustaining costs.

e) Energy costs will be calculated on the basis of energy consumption of producing a batch within a specified time, so it will be termed as batch-level costs.