During the current year,Kemp Construction Company built 23 custom homes that ranged in size from 2,500 square feet to 8,000 square feet.One home was completed each month during January,February,and March.Three homes were completed during April and May.Two homes were completed during each of the months from June through December.Based upon this information,the most appropriate allocation base (i.e.,cost driver)for the assignment of indirect overhead costs to each house would be the:
A) Number of homes built during the month.
B) Number of months in the year.
C) Number of homes built during the year.
D) Size of the home.

Question

Quizplus · Accepted Answer

The size of the home is the most appropriate allocation base for assigning indirect overhead costs because it directly correlates with the complexity and resources required for each project. Larger homes likely require more materials, labor, and time, which should be reflected in the allocation of overhead costs. Choices A, B, and C do not account for the variation in size and complexity between the homes.

During the Current Year,Kemp Construction Company Built 23 Custom Homes