Easton Company makes and sells scooters. Easton incurred the following costs in its most recent fiscal year: $$\begin{array} { | l | l | }
\hline { \text { Cost Items Appearing } } & \text { on the Income Statement } \
\hline \text { Materials cost (\$10 per unit) } & \text { Depreciation on manufacturing equipment } \
\hline \text { Company president's salary } & \text { Salaries of administrative personnel } \
\hline \text { Labor cost (\$4 per unit) } & \text { Research and development costs } \
\hline \text { Advertising costs ( } 150.000 \text { per year) } & \text { Real estate taxes on factory } \
\hline \text { Shipping and handling } ( \$ 0.15 \text { per unit) } & \text { Inspection costs } \
\hline
\end{array}$$ 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?

Question

Easton Company makes and sells scooters. Easton incurred the following costs in its most recent fiscal year: $$\begin{array} { | l | l | } 
\hline  { \text { Cost Items Appearing } } & \text { on the Income Statement } \
\hline \text { Materials cost (\$10 per unit) } & \text { Depreciation on manufacturing equipment } \
\hline \text { Company president's salary } & \text { Salaries of administrative personnel } \
\hline \text { Labor cost (\$4 per unit) } & \text { Research and development costs } \
\hline \text { Advertising costs ( } 150.000 \text { per year) } & \text { Real estate taxes on factory } \
\hline \text { Shipping and handling } ( \$ 0.15 \text { per unit) } & \text { Inspection costs } \
\hline
\end{array}$$ 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?

Quizplus · Accepted Answer

Facility-level costs are those that are incurred to sustain the overall manufacturing facility, regardless of the volume of production. The company president's salary is a facility-level cost as it is not directly tied to the production of scooters.

Easton Company Makes and Sells Scooters Easton Can Currently Purchase the Scooters It Makes from Another