What Should Determine Whether an Allocation Base Is a Good

question 46

Multiple Choice

What should determine whether an allocation base is a good cost driver in a service organisation?

• A) Whether or not it satisfactorily links to the service cost object
• B) Whether or not it links the service cost to the service cost object
• C) Whether or not the base can be measured with absolute accuracy
• D) Whether or not the service cost being allocated is large

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Definitions:

FIFO

"First-In, First-Out," an inventory management and valuation method where the earliest goods acquired are the first sold or used.

Perpetual

In inventory management, a perpetual system continuously updates the inventory records for each purchase and sale, providing real-time inventory levels.

Periodic Inventory Systems

An inventory recording system where goods are physically counted at specific intervals to determine cost of goods sold and ending inventory.

Retail Inventory Method

An accounting method used by retailers to estimate inventory value by converting retail prices to cost, often used for financial reporting and determining cost of goods sold.