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.
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Batch-level costs include setup costs, inspection costs, and material handling for a batch.
These costs are incurred each time a batch is processed, irrespective of the number of units in the batch.
Batch-level costs are distinct from unit-level and product-level costs.
Accurate allocation of batch-level costs is crucial for precise product costing in activity-based costing systems.
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.