In order to provide full cost information for external reporting purposes, indirect production costs must be allocated to goods produced.

Question

Quizplus · Accepted Answer

Indirect production costs (such as rent, utilities, indirect labor) cannot be directly traced to a specific product, so they must be allocated to the products based on some predetermined basis, such as machine hours or labor hours. This is necessary for external reporting purposes to accurately reflect the actual costs of producing each product.

In Order to Provide Full Cost Information for External Reporting