A Company Sets Up Cost Pools for Indirect Cost Allocation

question 32

Multiple Choice

A company sets up cost pools for indirect cost allocation. Management sees clear cause-and-effect relationships between the incurrence of costs and the chosen the cost-allocation base. What other common relationships or basis with a cost allocation base might management utilize to allocate costs?

• A) R&D expenses
• B) benefits -received
• C) Capital investment in a related process
• D) gross profit proportions

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Definitions:

Law of Diminishing Returns

An economic principle stating that if one factor of production is increased while other factors are held constant, the resulting increase in output will eventually decrease.

Fixed Input

Production factor that cannot be varied.

Technological Improvement

A process of innovation where new technologies or improvements to existing ones increase the efficiency or effectiveness of products, services, or processes.

Diminishing Returns

A principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot increase proportionally.