Consider the following statements about dual-cost allocation:
I. Dual-cost allocation prevents a change in the short-run activity of one department from affecting the cost allocated to another department.
II. Dual-cost allocations create an incentive for user department managers to understate their expected long-run service needs.
III. Dual-cost allocations are generally preferred over lump-sum allocations, or those that combine variable and fixed costs together.
Which of the above statements is (are) true?
A) I only.
B) III only.
C) I and II.
D) II and III.
E) I, II, and III.

Question

Quizplus · Accepted Answer

Dual-cost allocation separates fixed and variable costs, preventing short-run activity changes from affecting other departments (I). It can incentivize managers to understate long-run needs to reduce fixed cost allocations (II). It is generally preferred over lump-sum allocations for better cost management (III).

Consider the Following Statements About Dual-Cost Allocation