In preparing a responsibility income statement that shows contribution margin and responsibility margin, two concepts are involved in allocating costs to the various centers. These concepts are:
A) Whether the costs are variable or fixed and whether they are material in dollar amount.
B) Whether the costs are traceable to the responsibility center and whether the responsibility center is organized as a profit center or an investment center.
C) Whether the costs are variable or fixed and whether they are directly traceable to the responsibility center.
D) Whether the costs are traceable to the responsibility center and whether they are material in dollar amount.

Question

Quizplus · Accepted Answer

The two concepts involved in allocating costs to the various centers are whether the costs are variable or fixed and whether they are directly traceable to the responsibility center. This means that costs that are directly related to the activities of the center and that vary in proportion to the level of the center's activities are allocated to the center. Fixed costs that cannot be directly traced to the center are allocated based on some reasonable basis such as square footage, headcount, or machine hours. Materiality is not a factor in this allocation process.

In Preparing a Responsibility Income Statement That Shows Contribution Margin