When allocating costs to value inventory, what is the underlying reason why firms allocate rather than directly measure capacity costs?
A)Traceability.
B)Profitability.
C)Responsibility.
D)Reliability.
E)None of the above.

Question

Quizplus · Accepted Answer

Allocating costs allows for better traceability of costs to specific inventory items or product lines. Directly measuring capacity costs may not always be possible or feasible, and allocating costs based on usage or activity provides a reasonable approximation. Furthermore, it allows for a more accurate calculation of product costs and pricing decisions. Profitability, responsibility, and reliability may all be factors in cost allocation decisions, but the main underlying reason is traceability.

When Allocating Costs to Value Inventory, What Is the Underlying