When the purpose of cost allocation is to provide information for economic decisions or to motivate managers and employees, which of the following would be the best criteria?
A) the cause-and-effect and the ability-to bear criteria
B) the cause-and-effect and the benefits-received criteria
C) the benefits-received and the fairness criteria
D) the fairness and the ability-to-bear criteria

Question

Quizplus · Accepted Answer

The cause-and-effect criterion is important for identifying the costs that are directly attributable to a specific operation, department or product. The benefits-received criterion is important for motivating managers and employees to maximize their benefits by reducing the costs of the products and services they create. This criterion also provides information for economic decisions. Therefore, the combination of these two criteria is the best choice for cost allocation when the purpose is to provide information for economic decisions or to motivate managers and employees.

When the Purpose of Cost Allocation Is to Provide Information