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

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Definitions:

Corrective Action

Measures taken to identify, eliminate, and prevent recurrence of defects or problems in a product, process, or system.

Variance Analysis

A technique used to identify and explain the reasons for differences between budgeted and actual financial performance.

Standard Costs

Predetermined costs assigned to goods and services, used as target prices to measure performance.

Actual Costs

The genuine costs incurred in the production of goods or services, including all direct labor, materials, and overhead expenses.