In the Mechanics of Process Costing, Why Is an Allocation

question 5

Multiple Choice

In the mechanics of process costing, why is an allocation that computes costs based on the number of physical units not accurate?

• A)A number based on physical units does not include fixed costs.
• B)A number based on physical units does not include overhead costs.
• C)It attaches too much variable costs to each unit.
• D)It attaches the same value to a unit whether the unit is in process or is complete.
• E)None of the above.

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Definitions:

Milk

A nutrient-rich fluid produced by the mammary glands of mammals, commonly consumed by humans and used in a variety of food products.

Pareto Optimal

A state of allocation of resources from which it is impossible to reallocate to make any individual or preference criterion better off without making at least one individual or preference criterion worse off.

Utility Functions

These are equations that quantify the happiness or satisfaction a consumer receives from consuming various goods and services.

Marginal Rate of Substitution

The rate at which a consumer is willing to give up one good in exchange for an additional unit of another good, while keeping utility constant.