When the Purpose of Cost Allocation Is to Provide Information

question 146

Multiple Choice

When the purpose of cost allocation is to provide information for economic decisions or to motivate managers and employees, which of the following would be the best criteria?

• A) the cause-and-effect and the ability-to bear criteria
• B) the cause-and-effect and the benefits-received criteria
• C) the benefits-received and the fairness criteria
• D) the fairness and the ability-to-bear criteria

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Definitions:

Expenses

Costs incurred by a business in the process of earning revenue, including costs such as rent, utilities, and salaries.

Equity

The remaining interest in a company's assets after all debts are subtracted, signifying the owner's stake in the business.

Dividends

Funds disbursed by a company to its stockholders, originating from the firm's profits.

Stockholders

Individuals or institutions that own shares in a corporation, making them owners of the company.