When Investments in Facilities Are Shared by Different Subunits in a Firm,allocation

question 68

Multiple Choice

When investments in facilities are shared by different subunits in a firm,allocation of cost of these common facilities to sharing units should be determined by:

• A)Reference to Generally Accepted Accounting Principles (GAAP).
• B)Amount of capacity only.
• C)The relative amount of use of the facilities,or demand for the facilities,by the various subunits.
• D)Special techniques prescribed by the AICPA.
• E)Some measure of current value (e.g. ,replacement cost).

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Definitions:

Market Prices

The current prices at which goods and services are bought and sold in the marketplace, determined by the forces of supply and demand.

Influence

The ability to impact the nature, growth, or actions of an individual or object, or the impact that is made.

Market Failure

A scenario in which the distribution of goods and services through an unregulated market fails to achieve efficiency, typically resulting in a decrease in overall social welfare.

Economies

The system by which goods and services are produced, distributed, and consumed within a particular area or community.