A Number of Costs That Are Commonly Allocated Are Listed

question 116

Essay

A number of costs that are commonly allocated are listed in the following table followed by two alternative cost allocation bases. $$\begin{array} { | l | l | l | } \hline \text { Cost Description } & { \text { Allocation Base Altematives } } \\\hline \text { Cafetena costs } & \text { Direct labor costs } & \text { Number of employees } \\\hline \text { Computer system costs } & \text { Number of departments } & \text { Amount of computer time used } \\\hline \text { Indirect labor costs } & \text { Direct labor hours } & \text { Number of supervisors } \\\hline \text { Indirect materials } & \text { Direct labor hours } & \text { Drrect material dollars } \\\hline \text { Factory rent } & \text { Number of departments } & \text { Square footage } \\\hline \text { Fringe benefits costs } & \text { Number of departments } & \text { Number of employees } \\\hline \text { Housekeeping costs } & \text { Square footage } & \text { Number of employees } \\\hline \text { Joint costs } & \text { Number of joint products } & \text { Sales value at split-off } \\\hline \text { Maintenance costs } & \text { Machine hours } & \text { Number of employees } \\\hline \text { Personnel department costs } & \text { Number of employees } & \text { Number of departments } \\\hline\end{array}$$ Required: For each cost listed, circle the cost allocation base that you believe would be more appropriate for allocating the cost.

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Definitions:

Normative Economic

An aspect of economics that examines values or judgments about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal.

Economic Analysis

The systematic approach to determining the optimal use of scarce resources, involving comparison of costs and benefits.

Consumers

Individuals or entities that purchase goods and services for personal use or consumption, driving demand in the economy.