The reason for allocating indirect costs is:
A) for pricing decisions
B) to comply with external reporting requirements
C) to remind departmental managers of the full impact of their decisions
D) all of the above

Question

Quizplus · Accepted Answer

Indirect costs are allocated for all the given reasons in the options A, B and C. Indirect costs are allocated to determine the true cost of the product or service, which is essential for pricing decisions. External reporting requirements may demand the allocation of indirect costs for financial statements. Allocating indirect costs also helps remind departmental managers of the full impact of their decisions on the organization's profitability.

The Reason for Allocating Indirect Costs Is