Using department indirect-cost rates to allocate costs will result in results similar to ABC if:
A) a single activity accounts for a sizable portion of the costs of the department
B) several activities cause a sizable portion of the costs of the department
C) a single activity accounts for a small portion of the costs of the department
D) several activities cause a small portion of the costs of the department

Question

Quizplus · Accepted Answer

Using department indirect-cost rates to allocate costs will result in results similar to ABC if a single activity accounts for a sizable portion of the costs of the department. This is because departmental indirect-cost rates assume that all activities within the department consume resources at the same rate. Thus, if one activity consumes a significantly higher amount of resources than the other activities, using department indirect-cost rates may lead to results similar to ABC. However, if multiple activities consume a similar amount of resources, ABC would be a more accurate method of cost allocation.

Using Department Indirect-Cost Rates to Allocate Costs Will Result in Results