To allocate corporate costs to divisions, the allocation base used should:
A)be an output unit-level base
B)have the best cause-and-effect relationship with the costs
C)combine administrative costs and human resource management costs
D)allocate the full costs

Question

Quizplus · Accepted Answer

The allocation base used should have the best cause-and-effect relationship with the costs. This ensures that the costs are allocated to the divisions that are most responsible for incurring them, and minimizes the risk of unfairly burdening some divisions with costs that should be borne by others. Allocating the full costs (D) is not always necessary or appropriate, and combining administrative costs and human resource management costs (C) may not provide sufficient granularity for accurate cost allocation. Using an output unit-level base (A) could work in some cases, but it may not be the best choice for all types of costs or divisions.

To Allocate Corporate Costs to Divisions, the Allocation Base Used