What Is the Purpose of Using a "Cost Allocation System

question 81

Multiple Choice

What is the purpose of using a "cost allocation system" such as FIFO?

• A)Determining which expenditures to capitalize into the "inventory" account.
• B)Determining which expenditures to expense into the "cost of goods sold" account.
• C)Determining how much of the costs recognized in inventory should be expensed in the year.
• D)Determining the appropriate valuation of inventories that remain on hand.

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Definitions:

Marginal Cost

Marginal cost is the additional cost incurred from producing one extra unit of a good or service, an important concept in economics for determining optimal production levels.

Average Total Cost

The total cost of production (fixed and variable costs combined) divided by the quantity of output, a key factor in pricing and profitability analyses.

Marginal Revenue

The additional income generated from selling one more unit of a product or service.

Profit-Maximizing

A strategy or point where a firm produces at a level where its marginal cost equals marginal revenue, maximizing its profit.