Assume That a Factory Seeks to Allocate Rent to Several

question 30

Multiple Choice

Assume that a factory seeks to allocate rent to several departments that occupy the factory.The factory is occupied by all of the departments.Which of the following is the most logical cost driver for allocating the factory rent?

• A) Number of employees
• B) Square footage occupied by each department
• C) Machine hours
• D) Number of labor hours in each department

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Definitions:

Cost Object

Any item for which a separate measurement of costs is desired, such as a product, service, project, or department.

Normalised Overhead Rate

A rate calculated to allocate overhead costs uniformly throughout the production process, adjusted for variations to ensure consistency over time.

Overhead Rate

A metric that allocates overhead costs to the units of production or other cost bases.

Activity-based Costing

A costing method that assigns overhead and indirect costs to specific activities, helping to more accurately determine the cost of products and services.