A. Because of the different natures of fixed and variable costs, they should not have the same allocation base. For example, machine lubricant may be allocated based on the number of hours the machines run. But those machine hours will have little to do with allocating the cost of rent, a fixed cost. Rent might be allocated according to square footage occupied by each machine and what each machine is used for.

B. The word "homogeneous" means "of the same kind or nature." When we allocate costs, we group several different costs together and allocate them on some basis that is meaningful. For example, if we are using ABC costing and we are allocating setup costs, we will want to group all costs having to do with setups together. That might be the production supervisor's time, because maybe the supervisor does all the setups, and it might also include an engineer's time to supervise. But what if the cost accountants decided to include in the "Setups" cost pool some activity that had nothing to do with doing setups, like the salary of the employee who sweeps the floor? The total cost would be allocated among all of the products for which production processes had been set up during the period. The total cost to be allocated would include the salary of the supervisor, the salary of the engineer, and the salary of the employee who sweeps the floor. So the total cost being allocated to setups would be higher than the actual cost of the setups. The cost allocated would not be accurate.

That is why it is important when developing a cost pool to use costs that all relate to the cost drivers being used to allocate the costs in the cost pool. Those would be homogeneous costs.

C. Multiple cost pools may be used to allocate costs, but each cost pool can be associated with only one cost driver (activity), since the cost driver is used to allocate the costs in that cost pool.

D. Choosing a simple allocation method often requires generalizations or assumptions that will lead to inconsistent or inaccurate cost allocations.