When Actual Cost-Allocations Rates Are Used, Which of the Following

question 74

Multiple Choice

When actual cost-allocations rates are used, which of the following would be true?

• A) user divisions pay for costs that exceed budgeted amounts
• B) managers of the supplier division are motivated to improve efficiency
• C) user divisions are unaware of the allocated amounts until the end of the budget period
• D) managers know with certainty the rates to be used in that budget period

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Definitions:

Variable Costing

A method of accounting that incorporates only the costs that vary with production into the cost of products, leaving out any fixed manufacturing overhead.

Absorption Costing

A fiscal recording method that consolidates every cost involved in manufacturing, which includes the price of direct materials, payments for direct labor, and total overhead costs, whether stable or fluctuating, into the cost allocated to a product.

Variable Costing

A costing method that incluonly direct materials, direct labor, and variable manufacturing overhead in product costs, excluding fixed manufacturing overhead.

Total Fixed Manufacturing Overhead

The sum of all costs related to manufacturing a product that do not change with the level of production, such as salaries of permanent staff and rent.