Which of the following problems arise when costs of depreciation,insurance,or rent are allocated to products to calculate the cost of each unit of output?
A)Fixed costs are erroneously allocated as variable costs.
B)The measured observations of cost driver are reliable.
C)The measured observations of related costs are reliable.
D)The estimates of the cost driver are more accurate compared to costs.
E)The cost drivers are accurate because they are all grouped together.

Question

Quizplus · Accepted Answer

When fixed costs such as depreciation, insurance, or rent are allocated to products, there is a risk of erroneously allocating them as variable costs. This can lead to inaccurate cost calculations and misinformed decision-making. It is important to distinguish between fixed and variable costs to accurately calculate the cost of each unit of output.

Which of the Following Problems Arise When Costs of Depreciation,insurance,or