Answer (C) is correct . Service department costs are considered part of factory overhead and should be allocated to the production departments that use the services. A basis reflecting cause and effect should be used to allocate service department costs. For example, the number of kilowatt hours used by each producing department is probably the best allocation base for electricity costs.
Answer (A) is incorrect because Making allocations on the basis of units sold may not meet the cause-and-effect criterion.
Answer (B) is incorrect because The salary of service department employees is the cost allocated, not a basis of allocation.
Answer (D) is incorrect because Making allocations on the basis of materials usage may not meet the cause-and-effect criterion.
|
