Using a Department Indirect Cost Rate to Allocate Costs to Products

question 72

Multiple Choice

Using a department indirect cost rate to allocate costs to products will result in the same product costs as an ABC system if which of the following is true?

• A) if each activity within a department has the same cost allocation base, and the different products use resources from different activity areas in the same proportion
• B) if significant costs are incurred on different activities with different cost-allocation bases within a department, the different products use resources from different activity areas in different proportions
• C) if no single activity accounts for a significant fraction of a department's costs
• D) if information needed for an ABC is too expensive to develop and maintain accurately
• E) if each activity in a department has a separate costing system and uses different activity cost drivers

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Definitions:

Mesophyll

The inner tissue of a leaf, containing many chloroplasts where photosynthesis occurs.

Photosynthesis

The process by which green plants and some other organisms use sunlight to synthesize foods from carbon dioxide and water, generating oxygen as a byproduct.

Carbon Dioxide

This gas, which has no color and no smell, is generated when carbon and organic substances burn and through the act of respiration. It is a natural component of the air and is utilized by plants for photosynthesis.

Sugar

A sweet-flavored substance derived from various plants, primarily sugar cane and sugar beet, consisting chiefly of sucrose, and used as a sweetener in food and drink.