A business which enters into a contract to purchase a product which compensates the manufacturer under a cost reimbursement agreement should take an active part in the determination of how joint costs are allocated because ________.
A) the manufacturer may allocate a large portion of its other costs to these products
B) the business need those information for its tax reporting purposes
C) the FASB requires the business to participate in the cost allocation process
D) it is an opportunity for the business to enhance its market knowledge

Question

Quizplus · Accepted Answer

Since the manufacturer may allocate a large portion of its other costs to the products under the cost reimbursement agreement, it is important for the business to take an active part in the determination of how joint costs are allocated. This will ensure that the business is not overcharged for the products and that the manufacturer is not unfairly compensated. Therefore, choice A is the best answer. The other options (B, C, and D) are not relevant or necessary for the business to actively participate in the cost allocation process.

A Business Which Enters into a Contract to Purchase a Product