Which of the Following Are True About Cost Allocation

question 16

Multiple Choice

Which of the following are true about cost allocation?

• A)Cost allocation is a form of transfer pricing for indirect costs
• B)Cost allocation is an internal tax on services
• C)Cost allocation distorts choices that managers would make otherwise
• D)Cost allocation should be imposed when marginal cost exceeds average cost of an internal resource
• E)All of the above

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Definitions:

Marginal Cost

The rise in overall expenses incurred from manufacturing an extra unit of a good or service.

Economic Profit

The separation between total proceeds and cumulative costs, covering both explicit financial outlays and implied expenses.

Opportunity Costs

The loss of potential gain from other alternatives when one particular alternative is chosen over others.

Marginal Revenue

The supplementary income produced through the sale of an extra unit of a product or service.