The long-run average or peak period needs of operating departments would be the most suitable base for allocating:
A) the variable element of power costs.
B) the fixed element of power costs.
C) total power costs.
D) any spending variance associated with power costs.

Question

Quizplus · Accepted Answer

Since fixed element costs do not change with the changes in the level of output, the long-run average or the peak period needs of operating departments would be a more suitable base for allocating the fixed element of power costs. This ensures that each department is charged a fair amount for their use of power, regardless of how much they use in a given period. As for the variable element of power costs, it would be allocated based on actual usage during the period being measured. Total power costs would be divided between fixed and variable costs, and the spending variance associated with power costs would be analyzed separately to identify any areas of overspending or cost savings that could be addressed in the future.

The Long-Run Average or Peak Period Needs of Operating Departments