Indirect costs are traced to cost objects.

Cost drivers are used to allocate indirect costs to cost objects.

An allocation rate is calculated by dividing the allocation base by the total cost to be allocated.

A cost driver must be identified for each cost pool that is to be allocated.

Depreciation on a building might be allocated to the departments sharing the building based on the number of square feet occupied by each department.

True or False

Question

Business

Jaylah Strickland

29 September, 03:44

Indirect costs are traced to cost objects.

Cost drivers are used to allocate indirect costs to cost objects.

An allocation rate is calculated by dividing the allocation base by the total cost to be allocated.

A cost driver must be identified for each cost pool that is to be allocated.

Depreciation on a building might be allocated to the departments sharing the building based on the number of square feet occupied by each department.

True or False

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Answers (1)

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Lilia Mcguire · Answer 1

The following statement is false and true

1. Indirect costs are traced to cost objects - This statement is false because it is not directly traced to the cost objectives. It is traced through the cost drivers.

2. Yes, this statement is true because the cost drivers are used to allocate the indirect cost to their cost objects

3. Yes, this statement is true because for computing the allocation rate, we have to divide the total allocation cost to its allocation base

4. Yes, this statement is true because the cost drivers play very important for cost allocation. Without cost drivers, the allocation of the cost would not be possible

5. This statement is false because depreciation should be allocated based on its useful life rather than the number of square feet because the number of square feet occupied is used to allocate the renting cost