What Should Determine Whether an Allocation Base Is a Good

question 5

Multiple Choice

What should determine whether an allocation base is a good cost driver?

• A) Whether or not the base can be measured in terms of "hours".
• B) Whether or not the base can be applied plantwide.
• C) Whether or not the base is unique to the overhead being allocated.
• D) Whether or not there is a cause-and-effect relationship between the base and the overhead cost.

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Definitions:

Bondholder

An investor or owner of bonds issued by corporations or governments, entitled to receive interest payments and the principal amount at maturity.

Semiannual Interest

Interest calculated and paid twice a year on investments or loans.

Bond Discount

The difference when the market value of a bond falls below its original principal amount or face value.

Straight-line Method

A method of calculating depreciation by evenly spreading the cost of an asset over its expected useful life.