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Answer: A
NEW QUESTION: 2
Cost allocation is the process of assigning indirect costs to a cost object. The indirect costs are grouped in cost pools and then allocated by a common allocation base to the cost
object. The base that is employed to allocate a homogeneous cost pool should.
A. Have a high correlation with the cost items in the cost pool as the sole criterion for selection.
B. Have a cause-and-effect relationship with the cost items in the cost pool.
C. Assign the casts in the pool uniformly to cost objects even if the cost objects use resources in a non uniform way.
D. Be a nonfinancial measure e.g., number of setups) because a nonfinancial measure is more objective.
Answer: B
Explanation:
A cost allocation base is the common denominator for systematically correlating indirect costs and a cost object. The cost driver of the indirect costs is ordinarily the allocation base. In a homogeneous cost pool, all cost should have the same or a similar cause-andeffect relationship with the cost allocation base.
NEW QUESTION: 3
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