Why Do Companies Develop Cost Allocation Methods to Assign Service

question 35

Multiple Choice

Why do companies develop cost allocation methods to assign service department costs to producing departments?

• A) to identify the total cost of production
• B) to accurately determine the cost of a product
• C) to develop transfer prices for products
• D) A and B

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Definitions:

Markup

The addition to the cost price of items to include overhead expenses and profits.

Total Job Cost

The complete cost associated with a specific job or project, including materials, labor, overhead, and any other costs directly related to the project.

Job M825

A specific designation for a job or project, often used within a job-order costing system to track costs and progress.

Predetermined Overhead Rate

A calculated rate used to estimate the manufacturing overhead cost for a particular job or production process, calculated before costs are incurred.