A Key Disincentive Effect of Departmental Cost Allocation Can Occur

question 51

Multiple Choice

A key disincentive effect of departmental cost allocation can occur when:

• A)allocated costs are less than external purchase costs.
• B)managers do not understand the incentives in the allocation base.
• C)the allocation base is actual usage.
• D)the allocation base is budgeted usage.
• E)the allocation base is greater than usage.

Understand how transactions not involving cash are reported in financial statements.

Analyze the impact of changes in working capital accounts on cash flow.

Understand the importance and structures of informative reports.

Recognize the components and techniques for effective outlining.

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Definitions:

Fixed Basket

A set of goods and services whose quantities are fixed, used for calculating measures like the Consumer Price Index (CPI) to assess changes in the cost of living over time.

COLA

Cost of Living Adjustment, an increase in income to match rising prices in an attempt to maintain a person's standard of living.

CPI

The Consumer Price Index is an indicator that calculates the average weighted prices of a range of consumer goods and services, serving as a gauge for inflation.

CPI

The Consumer Price Index is a metric that calculates the average prices of a selected group of consumer goods and services, such as healthcare, transportation, and food, using a weighted average system.