Consider the Following Statements About Dual-Cost Allocation

question 41

Multiple Choice

Consider the following statements about dual-cost allocation:
I. Dual-cost allocation prevents a change in the short-run activity of one department from affecting the cost allocated to another department.
II. Dual-cost allocations create an incentive for user department managers to understate their expected long-run service needs.
III. Dual-cost allocations are generally preferred over lump-sum allocations, or those that combine variable and fixed costs together.
Which of the above statements is (are) true?

• A) I only.
• B) III only.
• C) I and II.
• D) II and III.
• E) I, II, and III.

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Definitions:

Effective Interest Method

A technique of calculating the amortized cost of a bond and the interest expense over the bond's life, taking into account any premiums or discounts.

Journal Entry

A record in accounting that notes every transaction, capturing both the debit and credit side, in financial statements.

Market Rate

The prevailing interest rate available in the marketplace or the price at which goods can be bought or sold in an open market.

Bond Issue

The process by which a borrower issues bonds to investors in order to raise capital.