Use the following information for the next 2 questions.
Flowing Wells Corporation is preparing its annual budget. As part of its analysis of the contribution of individual products to overall profitability, the controller estimates the amount of overhead that should be assigned to the individual product lines. Budgeted inspection costs are $4,800. Additional information is as follows:
-A cost system will be improved if
A) As many costs as possible are classified as direct costs
B) Indirect cost pools include costs that have the same cost driver
C) Each indirect cost pool uses the same cost driver
D) Both (a) and (b)

Question

Use the following information for the next 2 questions.
Flowing Wells Corporation is preparing its annual budget. As part of its analysis of the contribution of individual products to overall profitability, the controller estimates the amount of overhead that should be assigned to the individual product lines. Budgeted inspection costs are $4,800. Additional information is as follows: 
-A cost system will be improved if
A) As many costs as possible are classified as direct costs 
B) Indirect cost pools include costs that have the same cost driver 
C) Each indirect cost pool uses the same cost driver 
D) Both (a) and (b)

Quizplus · Accepted Answer

Classifying as many costs as possible as direct costs (A) improves accuracy, and having indirect cost pools with the same cost driver (B) ensures more precise allocation, thus both improve the cost system.

Use the Following Information for the Next 2 Questions