Why Is Activity-Based Costing Used to Allocate Service Department Costs

question 30

Multiple Choice

Why is activity-based costing used to allocate service department costs?

• A)To improve allocations of production department costs to production departments.
• B)To improve allocations of production department costs to service departments.
• C)To improve allocations of service department costs to production departments.
• D)None of the answers is correct.

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Definitions:

Fractional Reserve Banking

A banking system in which banks keep a fraction of deposits as reserves and use the remainder for loans.

Bank Liabilities

Financial obligations owed by a bank to its depositors, creditors, and other parties.

Bank Assets

Resources owned by a bank, including loans, securities, cash, and property, that have economic value and can be used to meet its liabilities.

Mad Money

Extra money reserved for spontaneous expenses or for small luxuries, often used more liberally.