Asked by Bella Carranza on Jun 08, 2024
Verified
Jasmine Doh is considering using cost drivers that are measured in dollars (rather than physical units) for her company. Your advice is:
A) This is a good idea as cost drivers measured in dollars are usually already recorded in the accounting system.
B) This is a good idea as it avoids estimating costs associated with each physical unit of cost driver.
C) This is a bad idea because dollar-based cost drivers are subject to price change.
D) This is a bad idea because using dollar-based cost drivers oversimplifies the cost allocation process.
Dollar-based Cost Drivers
Factors that cause a change in the cost of an activity, measured in monetary terms, such as labor hours, machine hours, or raw material quantities.
Cost Allocation Process
The method by which overhead or indirect costs are systematically assigned to various cost objects like products, services, or departments.
Accounting System
A systematic process of recording, summarizing, and reporting the financial transactions of a business or organization.
- Familiarize oneself with the concept and utility of cost drivers in the determination of product costs.
Verified Answer
LO
Lindsey O'LearyJun 13, 2024
Final Answer :
C
Explanation :
Dollar-based cost drivers are subject to price change, which can lead to inaccurate allocation of costs. Physical units are a more stable and reliable measure of cost drivers.
Learning Objectives
- Familiarize oneself with the concept and utility of cost drivers in the determination of product costs.