When Many Different Types of Support Department Costs Are Assigned

question 15

Multiple Choice

When many different types of support department costs are assigned to the same cost pool:

• A) Managers cannot allocate them
• B) Cost allocation becomes more arbitrary
• C) Cost allocation better reflects the flow of resources
• D) Managers cannot use the reciprocal method for allocation

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Definitions:

Actual Costs

The expenses that a company has truly incurred as opposed to estimated or budgeted amounts.

Standard Costs

Predetermined costs for products or services, used as a benchmark to measure actual performance and manage budgets.

Direct Materials

Raw materials that can be directly attributed to the production of specific goods or products, unlike indirect materials which cannot be directly linked to production.

Price Variance

The difference between the actual price paid for a good or service and its expected (budgeted) price.