Indirect costs are usually allocated rather than traced to cost objects because
A)allocation is required by external reporting requirements.
B)overall accuracy is improved by allocation.
C)no causal relationship exists between indirect costs and the cost object.
D)allocation is more convenient than tracing.

Question

Quizplus · Accepted Answer

Indirect costs, by definition, do not have a direct causal relationship with a particular cost object. Therefore, allocation is typically used to assign these costs to cost objects based on some predetermined allocation method, such as activity-based costing or predetermined overhead rates. This allows for a more accurate representation of the total cost of producing a product or service. Tracing indirect costs to a cost object would require a direct causal link, which is not typically available for indirect costs.

Indirect Costs Are Usually Allocated Rather Than Traced to Cost