Suppose that the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to happen to the costs of cakes?
A)The cost of cakes for receptions with more than the average number of guests would go down.
B)The cost of cakes for receptions with fewer than the average number of guests would go down.
C)The costs of all cakes would go down.
D)The costs of all cakes would go up.

Question

Quizplus · Accepted Answer

If costs are allocated based solely on the number of guests, then the cost of cakes for receptions with fewer guests would go down because there would be fewer guests to split the cost among. Conversely, the cost of cakes for receptions with more guests would go up as the cost is split among more people.

Suppose That the Company Decides That the Present Activity-Based Costing