Question

Cost allocation involves:_______.A. Identifying a cost driver for each cost to be allocated. B. Calculating an allocation rate for each cost to be allocated. C. Multiplying the allocation rate by the weight of the cost driver. D. All of the answers are correct.

Answer 1

Answer:

d. all of the answers are correct

Explanation:

Cost allocation is being done:

1)  to influence management behavior and thus promote goal and managerial effort,

2) to measure inventory costs and to know of goods sold on a product or project,

3) to justify cost (e.g to justify an accepted bid).

For example, if you are to determine the amount of electricity consumed at a particular period, the number of units consumed determines the total cost to be paid for the electricity consumed. In such an instance, the number of units of electricity consumed is a Cost Driver.

   A cost driver is the most appropriate way of calculating or determining a specific cost.

   Variable cost drivers can come in the form of hourly costs, costs per unit, or batch costs, among others.

   Cost drivers can be fixed costs, such as in the case of set-up costs.