When the purpose of cost allocation is to provide information for economic decisions or to motivate managers and employees,the best criteria are ________.
A) the cause-and-effect and the ability-to bear criteria
B) the cause-and-effect and the benefits-received criteria
C) the benefits-received and the fairness criteria
D) the fairness and the ability-to-bear criteria

Question

Quizplus · Accepted Answer

When the purpose of cost allocation is to provide information for economic decisions or to motivate managers and employees, the best criteria are the cause-and-effect and the benefits-received criteria. The cause-and-effect criterion links the cost directly to the activity causing the cost, providing useful information for economic decisions related to cost reduction or process improvement. The benefits-received criterion links the cost to the individual or department receiving the benefits, motivating managers and employees to be more efficient and use resources effectively. Therefore, option B (the cause-and-effect and the benefits-received criteria) is the best choice.

When the Purpose of Cost Allocation Is to Provide Information