Indirect Expenses Cannot Be Allocated to Departments Based on the Cost

question 101

True/False

Indirect expenses cannot be allocated to departments based on the cost of goods sold in each department.

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Definitions:

Production Constraint

A limitation or bottleneck in a manufacturing process that affects the overall output.

Contribution Margin Ratios

The proportion of sales revenue that remains after variable costs are subtracted, indicating how well a company can cover fixed costs and generate profits.

Constrained Resource

A factor within a production or operation process that limits the overall output, such as limited machinery, labor, or materials.

Direct Labour-Hours

The total hours worked by employees directly involved in the manufacturing process, used as a basis for assigning labor costs to products.