To guide cost allocation decisions, the benefits-received criterion:
A)generally uses the cost driver as the cost allocation base
B)results in subsidizing products that are not profitable
C)is the primarily used criterion in activity-based costing
D)may use an allocation base of division revenues to allocate advertising costs

Question

Quizplus · Accepted Answer

The benefits-received criterion allocates costs based on the level of benefit received by each division or product. This may be measured by revenues, which makes D an appropriate choice. Choice A is incorrect because while the cost driver is important in the allocation process, it is not the sole criteria. Choice B is incorrect because the benefits-received criterion would not subsidize unprofitable products. Choice C is incorrect because while it may be used in activity-based costing, it is not the primary criterion for cost allocation decisions.

To Guide Cost Allocation Decisions, the Benefits-Received Criterion