What should determine whether an allocation base is a good cost driver?
A) Whether or not the base can be measured in terms of "hours".
B) Whether or not the base can be applied plantwide.
C) Whether or not the base is unique to the overhead being allocated.
D) Whether or not there is a cause-and-effect relationship between the base and the overhead cost.

Question

Quizplus · Accepted Answer

The most important characteristic of a good cost driver or allocation base is the existence of a cause-and-effect relationship between the base and the overhead cost being allocated. This means that changes in the cost driver should result in proportionate changes in the overhead cost. Measures like "hours" or plantwide allocation are not necessarily determinants of a good cost driver. The base should also be unique to the overhead cost being allocated to avoid cross-subsidization of one cost by another.

What Should Determine Whether an Allocation Base Is a Good