Why is activity-based costing used to allocate service department costs?
A)To improve allocations of production department costs to production departments.
B)To improve allocations of production department costs to service departments.
C)To improve allocations of service department costs to production departments.
D)None of the answers is correct.

Question

Quizplus · Accepted Answer

Activity-based costing is used to allocate service department costs to production departments because it allows for a more accurate allocation based on the specific activities that service departments perform for production departments. This method takes into account the actual usage of services, rather than allocating costs based on arbitrary methods such as the number of employees or square footage of the department. This results in a more precise allocation of costs and enables better decision-making by managers.

Why Is Activity-Based Costing Used to Allocate Service Department Costs