Fixed costs
A) should be allocated according to past production capacity.
B) should be allocated according to current usage.
C) should be allocated according to short-term expected usage.
D) should be allocated according to long-term expected usage.
E) should be allocated using actual usage as the allocation base.

Question

Quizplus · Accepted Answer

Fixed costs are long-term in nature and it is appropriate to allocate them based on long-term expected usage. This approach ensures that the cost is allocated fairly and accurately over the period it has been incurred. Allocating fixed costs based on past or short-term expected usage may result in either under or over allocation of costs. Allocating fixed costs using actual usage as the allocation base would not provide any benefit, as the fixed cost does not directly vary with the usage.

Fixed Costs