Question
Barry and Brothers Inc. produces technical equipment. The production is triggered based on customer order. To price the orders more accurately, they have recently introduced
Barry and Brothers Inc. produces technical equipment. The production is triggered based on customer order. To price the orders more accurately, they have recently introduced the ABC costing system. In one of its indirect cost pools, depreciation and energy costs are pooled together. Costs in this pool are allocated using machine hours as a cost driver for the easiness of costing operations. Based on the information provided, which of the following arguments is valid?
The company has failed to use the correct cost driver as the cost-allocation base for depreciation.
These two cost types are correctly pooled together as they have a similar cause-and-effect relationship with machine hours that is used as the cost-allocation base.
The company has unnecessarily wasted resources by classifying depreciation and energy costs as they could have been considered as direct costs.
The company has failed to use the correct cost driver as the cost-allocation base for energy costs.
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