Budgeted cost rates are used for allocating variable costs of service departments to user departments because ________.
A) it provides service departments a greater incentive to be efficient
B) it protects user departments from inefficiencies in service departments
C) it protects managers in service departments from inflation
D) A and B

Question

Quizplus · Accepted Answer

Budgeted cost rates provide service departments with a greater incentive to be efficient because they are allocated based on expected usage. Additionally, it protects user departments from inefficiencies in service departments because they are not directly responsible for the variable costs incurred by service departments. Therefore, both A and B are correct. Option C is incorrect because budgeted cost rates do not necessarily protect service department managers from inflation.

Budgeted Cost Rates Are Used for Allocating Variable Costs of Service