Why do companies develop cost allocation methods to assign service department costs to producing departments?
A) to identify the total cost of production
B) to accurately determine the cost of a product
C) to develop transfer prices for products
D) A and B

Question

Quizplus · Accepted Answer

Companies develop cost allocation methods to assign service department costs to producing departments because it helps to identify the total cost of production and accurately determine the cost of a product. By allocating service department costs, a more accurate picture of the total cost of production can be obtained, which is essential for proper decision making related to pricing, production volume, and profitability analysis. Cost allocation also helps in developing transfer prices for products, which enables companies to ensure that each department is accountable for their contribution to the company's overall profitability.

Why Do Companies Develop Cost Allocation Methods to Assign Service