If a cost must be arbitrarily allocated in order to be assigned to a particular segment, then that cost is a common cost

Question

Quizplus · Accepted Answer

If a cost cannot be directly traced to a specific segment and must be allocated based on some arbitrary method, then it is a common cost.

Three business practices that can hinder proper cost assignment are:

1) Using cost drivers that do not accurately reflect the consumption of resources by a particular segment
2) Failing to account for all relevant costs in the cost assignment process
3) Using a single cost pool to allocate costs to multiple products or services, which can make it difficult to accurately assign costs to specific segments.

If a Cost Must Be Arbitrarily Allocated in Order to Be