In terms of allocating fixed overhead cost to products, generally accepted accounting principles in the U.S.:
A) Require that such allocations be based on normal capacity.
B) Allow for the use of either practical capacity or theoretical capacity.
C) Don't apply since the resulting data are used only internally (for control purposes).
D) Specify only that such costs be "reasonably allocated" to outputs.
E) Require that these costs be expensed in the period incurred.

Question

Quizplus · Accepted Answer

Generally Accepted Accounting Principles (GAAP) in the U.S. require that fixed overhead costs be allocated based on normal capacity of the production facilities. This approach aims to spread the fixed costs evenly over the units produced under normal operating conditions, ensuring that product costing is not distorted by variations in production volume.

In Terms of Allocating Fixed Overhead Cost to Products, Generally