[jessanqi]

hi,

Can anyone please kindly advise this question???

Thank you in advance!!!

All of the following are likely to be used as a cost allocation base in activity-based costing except the

A. Number of different materials used to manufacture the product.
B. Units of materials used to manufacture the product.
C. Number of vendors supplying the materials used to manufacture the product.
D. Cost of materials used to manufacture the product.

Explanation
The correct answer is D. With activity-based costing (ABC), materials cost needs to be allocated based on a cost driver, such as the number of units used per product.

[RB]

Cost allocation is all about allocating overhead to products. Overhead being your factory foremen, electricity, building rent, factory equipment depreciation, and indirect materials (like glue, oil, small incidental items).

These are all allocated based on some activity or driver, the actual cost of materials are not a driver but rather something that's allocated to products. If they're direct materials there's no allocation, if its indirect materials you would take the total cost of all miscellaneous stuff and figure out the most logical way to apply them.

The “number of vendors” seems very unlikely too, but ultimately it boils down to the fact that an indirect material cost is what's allocated instead of an allocation base.

AUD - 95
BEC - 98
FAR - 98
REG - 91

Justin - reach out for more help

[jessanqi]

wow, greater explanation than the texbook!!

Thank you very much RB!!

[RB]

Happy to help, we're in this together!

AUD - 95
BEC - 98
FAR - 98
REG - 91

Justin - reach out for more help

[Starved_Wolf]

oh my god…. that was such a good explanation!

[Author]

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