Which of the following is TRUE concerning cost allocation in a multi-product company?
A)Where the indirect costs are variable and each product is assembled sequentially, the causality criterion can guide the choice of a cost allocation base.
B)Where the indirect costs are fixed and each product is assembled sequentially, the causality criterion can guide the choice of a cost allocation base.
C)Where the indirect costs are variable and each product is not assembled sequentially, the causality criterion can guide the choice of a cost allocation base.
D)Where the indirect costs are fixed and each product is not assembled sequentially, the causality criterion can guide the choice of a cost allocation base.
E)Where the indirect costs are fixed and the products are produced jointly, it is possible to identify specific cause-and-effect relationships between work on an individual product and total costs incurred.

Question

Quizplus · Accepted Answer

When indirect costs are variable and products are assembled sequentially, the causality criterion can guide the choice of a cost allocation base because there is a cause-and-effect relationship between the amount of resources used and the indirect costs incurred for each product. For example, if the indirect costs are related to machine setup time, the cost allocation base could be the number of machine setups required for each product.

Which of the Following Is TRUE Concerning Cost Allocation in a Multi-Product