In practice,companies often inappropriately allocate fixed cost pools for service departments to producing departments on the basis of ________ instead of ________.
A) budgeted costs; actual costs
B) actual costs; budgeted costs
C) capacity used; capacity available
D) capacity available; capacity used

Question

Quizplus · Accepted Answer

The appropriate basis for allocating fixed cost pools for service departments to producing departments is the capacity used by each department, rather than the capacity available. Allocating based on capacity available assumes that departments are using all of their available capacity, which may not be the case. On the other hand, using budgeted costs or actual costs may not reflect the actual capacity used by each department.

In Practice,companies Often Inappropriately Allocate Fixed Cost Pools for Service