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Business Level Or Sustaining Cost Homework Help

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Business level or sustaining cost

Business level or sustaining costs are costs of an activity that benefit an organization but are not caused by any specific supplier, product, service, or customer cost object. Many activities in a business do not directly contribute to customer value, responsiveness and quality. However these activities cannot be eliminated or reduced without causing harm to the business entity.

Let us consider an example; the preparation of required regulatory reports does not add value to the cost object or to provide customer satisfaction. However the activity has a value in the organization as it enables the function to operate in a legal manner. These types of activity costs are usually traced to the sustaining cost object group. This separates these organizational sustaining costs as not being involved with making or delivering a product or service to a customer.

Business level or sustaining costs are those costs that are not caused by products or customer needs. The consumption of these costs cannot be traced to products, services, customers or service recipients. Some of the examples of business level or sustaining costs are preparation of financial statements, plant management, and support of community programs.

Business level or sustaining costs can be eventually fully absorbed in products or services, but such a cost allocation is arbitrary. There is no cause and effect relationship between the business sustaining cost objects and the other final cost objects. When these cost objects are assigned to the final cost objects, organizations usually refer them as a “management tax” that represents a cost of doing apart from the products and services lines.

The other categories of costs that may be included in the sustaining costs are available capacity costs like buildings, equipment or research and development (R&D) which are assigned so that the timing or the recognition of the expenses is reasonably matched with revenue recognition for sales of the products and service lines.

Questions

  • What is business-level or sustaining costs?
  • What are the various categories of business-level or sustaining costs? 



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