Business (facility) level cost

Business (facility) level costs are those costs of an activity that are associated with maintaining the business and facilities. The facility costs relate to the residual costs. The facility level costs are taken place at the factory. These costs are incurred in maintaining the workspace; the utility used to run the facility (electricity, water, and telephone), the oil & spare parts used to make sure that the machine is in good working condition.

The facility level costs are incurred to ensure that the factory is in the productive condition, so they are related to the product and has to be classified as product cost, yet they are so general so that the direct traceability to individual product can only be done via "allocation" or indirect means.

The facility level cost is on the top of the hierarchy of the activities that create costs. The facility-level costs are also known as business/organization sustaining activity. It is an activity that supports business operations and cannot be traced to individual units, batches, or products. The facility-level costs are the strategic costs that are fixed with respect to any controllable cost driver.  Some of the examples of business or facility level costs are Examples of facility-level activities are: managing factory, heating factory, providing factory safety and security, maintaining general-purpose equipment, cleaning executive offices, arranging for loans, closing books each month, preparing annual reports to shareholders, providing a computer network, etc.

The facility level costs are performed to support a facility’s general manufacturing process and are usually fixed costs. For example in a furniture manufacturing industry the facility costs would include maintaining, lighting, securing and insuring the factory.

Questions

• What are facility level costs?
• What are facility costs that are incurred in a factory?
• What do facility level costs support in a factory?