In Allocating Fixed Costs to Products in Activity-Based Costing

question 3

Multiple Choice

In allocating fixed costs to products in activity-based costing,

• A)direct labor hours should always be used as the allocation base.
• B)a company should use the same allocation base that it uses for variable costs.
• C)a cost driver that is not volume-related should be used.
• D)machine hours should always be useD.

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Definitions:

Average Total Cost Curve

A graphical representation showing how the average total cost of production changes as the quantity of output changes.

Long-Run Equilibrium

A state in which all factors of production and costs are variable, allowing firms to make adjustments and leading to a situation where economic profit equals zero.

Just Tangent To

A condition where two curves meet at only one point without intersecting, often used in the context of optimizing problems.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good consumers are willing to buy at each price.