To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be
A) allocated on the basis of lost production.
B) eliminated completely from the cost of the asset.
C) allocated on an opportunity cost basis.
D) allocated on a pro rata basis between the asset and normal operations.

Question

Quizplus · Accepted Answer

The historical cost principle requires that all costs incurred in the construction of an asset, including overhead costs, be included in the cost of the asset. Allocating overhead costs on a pro rata basis between the asset and normal operations ensures that the asset is recorded at its full cost of construction, consistent with this principle.

To Be Consistent with the Historical Cost Principle, Overhead Costs