When allocating service department costs, companies should use:
A) actual costs rather than budgeted costs, and separate rates for variable and fixed costs.
B) budgeted costs rather than actual costs, and separate rates for variable and fixed costs.
C) budgeted costs rather than actual costs, and a rate that combines variable and fixed costs.
D) actual costs rather than budgeted costs, and a rate that combines variable and fixed costs.
E) a rate that is based on matrix theory.

Question

Quizplus · Accepted Answer

Budgeted costs rather than actual costs are preferred because they provide stability and predictability for planning and decision-making. Using separate rates for variable and fixed costs allows for more accurate allocation based on the actual consumption of services by various departments, reflecting the different nature of these costs.

When Allocating Service Department Costs, Companies Should Use