What Formula Should Be Used to Allocate Variable Costs from Service

question 105

Multiple Choice

What formula should be used to allocate variable costs from service departments to user departments?

• A)budgeted unit rate x total budgeted units planned to be used
• B)actual unit rate x total budgeted units planned to be used
• C)budgeted unit rate x actual units used
• D)actual unit rate x actual units used

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Definitions:

Initial Investment

The initial sum of money spent on starting a project, purchasing an asset, or establishing a business venture.

Annual Cash Inflow

Annual cash inflow is the total amount of money received by an individual or organization in one year from various sources, such as sales, investments, or financing activities.

Payback Method

A capital budgeting technique that calculates the time required for an investment to generate cash flows sufficient to recover its initial cost.

Time Value of Money

The principle that holding money now is more valuable than possessing the same sum at a later date because of its current potential to generate earnings.