What are organizational-level costs?

Certain costs at the organizational level are incurred for the singular purpose of supporting continuing facility operations. These organizational-level costs are ommon to many different activities and products or services and can be prorated to products only on an arbitrary basis. Although organizational-level costs theoretically should not be assigned to products at all, some companies attach them to goods produced or services rendered because the amounts are insignificant relative to all other costs.

Accountants have traditionally (and incorrectly) assumed that if costs did not ary with changes in production at the unit level, those costs were fixed rather han variable. In reality, batch, product/process, and organizational level costs are ll variable, but they vary for reasons other than changes in production volume. 

 

Therefore, to determine a valid estimate of product or service cost, costs should be accumulated at each successively higher level of costs. Because unit, batch, and product/process level costs are all associated with units of products (merely at diferent levels), these costs can be summed at the product level to match with the evenues generated by product sales. Organizational-level costs are not product related, thus they should only be subtracted in total from net product revenues.