Easton Company makes and sells scooters. Easton incurred the following costs in its most recent fiscal year: Easton can currently purchase the scooters it makes from another company. If the company purchases the scooters, Easton would still continue to use its own logo, sales staff, and advertising programs. Which of the following costs would be classified as a facility-level cost?
$$\begin{array} { | l | l | }
\hline { \text { Cost Items Appearing } } & \text { on the Income Statement } \
\hline \text { Materials cost (\$10 per unit) } & \text { Depreciation on manufacturing equipment } \
\hline \text { Company president's salary } & \text { Salaries of administrative personnel } \
\hline \text { Labor cost (\$4 per unit) } & \text { Research and development costs } \
\hline \text { Advertising costs ( } 150,000 \text { per vear) } & \text { Real estate taxes on factory } \
\hline \text { Shipping and handling (\$0.15 per unit) } & \text { Inspection costs } \
\hline
\end{array}$$

Question

Easton Company makes and sells scooters. Easton incurred the following costs in its most recent fiscal year: Easton can currently purchase the scooters it makes from another company. If the company purchases the scooters, Easton would still continue to use its own logo, sales staff, and advertising programs. Which of the following costs would be classified as a facility-level cost?
$$\begin{array} { | l | l | } 
\hline { \text { Cost Items Appearing } } & \text { on the Income Statement } \
\hline \text { Materials cost (\$10 per unit) } & \text { Depreciation on manufacturing equipment } \
\hline \text { Company president's salary } & \text { Salaries of administrative personnel } \
\hline \text { Labor cost (\$4 per unit) } & \text { Research and development costs } \
\hline \text { Advertising costs ( } 150,000 \text { per vear) } & \text { Real estate taxes on factory } \
\hline \text { Shipping and handling (\$0.15 per unit) } & \text { Inspection costs } \
\hline
\end{array}$$

Quizplus · Accepted Answer

Facility-level costs are costs that are incurred to support the entire company and are not directly tied to production levels. The company president's salary is a facility-level cost because it is a fixed cost that supports the overall operations of the company, regardless of the number of scooters produced or sold.

Easton Company Makes and Sells Scooters A)Inspection Costs B)Shipping and Handling C)Materials Cost D)Company President's Salary

Easton Company Makes and Sells Scooters A)Inspection Costs
B)Shipping and Handling
C)Materials Cost
D)Company President's Salary