Variable costing looks at only the variable costs. Since the variable costs are direct labor and direct materials, these do not need to be allocated. Overheads and other indirect costs are what are generally allocated.
The external reporting of income requires the allocation of all costs (absorption costing) to the units that were produced. Therefore, of the choices given, this is the best reason for the allocation of costs.
The allocation of costs is not part of the cash budgeting and expenditure control activities.
In order to evaluate a revenue center, the revenues of the center would be required, not the costs. Therefore, allocation of costs is not done to evaluate a revenue center.
|
