Genoa Company makes three products and classiﬁes its costs as belonging to the following functions: Design, Production, Marketing, Distribution, and Customer Service.All company costs are assigned to the three products.Direct costs of each of the ﬁve functions are traced directly to the three products.The indirect costs of each of the ﬁve business functions are collected into ﬁve separate cost pools and then assigned to the three products using appropriate allocation bases.The allocation base that will most likely be the best for allocating the indirect costs of the distribution function is:
A)Dollar sales volume.
B)Number of sales persons.
C)Number of customer phone calls.
D)Number of shipments.
E)None of these answer choices is correct.

Question

Quizplus · Accepted Answer

The allocation base that is most likely the best for allocating the indirect costs of the distribution function is the number of shipments. This is because the indirect costs of the distribution function would be driven by the number of shipments made to customers. The more shipments made, the more resources needed for distribution, such as labor, transportation costs, and packaging materials. Therefore, allocating the indirect costs of the distribution function based on the number of shipments would be the most appropriate allocation base.

Genoa Company Makes Three Products and Classiﬁes Its Costs as Belonging