Batch-level cost

Definition

Batch-level costs are expenses associated with producing a batch of products rather than individual units. These costs remain constant regardless of the size of the batch produced.

5 Must Know Facts For Your Next Test

1. Batch-level costs include setup costs, inspection costs, and material handling for a batch.
2. These costs are incurred each time a batch is processed, irrespective of the number of units in the batch.
3. Batch-level costs are distinct from unit-level and product-level costs.
4. Accurate allocation of batch-level costs is crucial for precise product costing in activity-based costing systems.
5. Examples include machine setup fees or quality control inspections that occur once per batch.

Review Questions

• What types of activities incur batch-level costs?
• How do batch-level costs differ from unit-level and product-level costs?
• Why is it important to accurately allocate batch-level costs in an activity-based costing system?

Related terms

Unit-Level Costs: Expenses incurred for each unit produced, such as direct materials and direct labor.

Product-Level Costs: Costs associated with specific products, regardless of the number of batches or units produced.

Activity-Based Costing (ABC): A costing method that assigns overhead and indirect costs to related activities, providing more accurate product cost information.