Use the information below to answer the following question(s).Low-Cost Rentals Ltd.incurred $60,000 of common fixed costs and $90,000 of common variable costs.Data are provided below for the capacity allowed and the capacity used. For both departments, common fixed costs are to be allocated on the basis of capacity available and common variable costs are to be allocated on the basis of capacity used.
-A disadvantage of allocating fixed costs using a budgeted rate and actual usage is that
A)supplying division managers may be tempted underestimate usage when budgeting unit costs.
B)the allocation would capture the cause-and-effect relationship.
C)variation in usage will result in variances that need to be managed.
D)changes in one department's usage should not affect another department's allocation.
E)some organizations offer rewards to managers who make accurate forecasts.

Question

Use the information below to answer the following question(s).Low-Cost Rentals Ltd.incurred $60,000 of common fixed costs and $90,000 of common variable costs.Data are provided below for the capacity allowed and the capacity used.  For both departments, common fixed costs are to be allocated on the basis of capacity available and common variable costs are to be allocated on the basis of capacity used.
-A disadvantage of allocating fixed costs using a budgeted rate and actual usage is that
A)supplying division managers may be tempted underestimate usage when budgeting unit costs. 
B)the allocation would capture the cause-and-effect relationship. 
C)variation in usage will result in variances that need to be managed. 
D)changes in one department's usage should not affect another department's allocation. 
E)some organizations offer rewards to managers who make accurate forecasts.

Quizplus · Accepted Answer

Supplying division managers may be tempted to underestimate usage when budgeting unit costs.

Use the Information Below to Answer the Following Question(s)