Allocating Costs by Department

The video tutorial explains cost allocation, a process of assigning costs to cost objects like departments or activities. It distinguishes between direct and indirect costs, emphasizing the complexity of allocating overhead costs. The tutorial introduces cost objects, job costing, and process costing, and explains the role of activity drivers in overhead allocation. Various cost allocation methods are discussed, including sales, profits, and direct labor hours. The goal is to determine departmental profitability or resource usage.

What is the primary challenge in allocating indirect costs compared to direct costs?

• Indirect costs do not affect the organization's profitability.

• Indirect costs are always higher than direct costs.

• Indirect costs are not related to production.

• Indirect costs are not easily assigned to specific cost objects.

Which of the following is an example of a cost object?

• The total revenue of a company

• A specific job or activity

• A company's annual budget

• The market share of a product

What is the main purpose of using activity drivers in cost allocation?

• To reduce the number of cost objects

• To allocate costs based on specific activities

• To simplify the accounting process

• To increase the overall costs

Which of the following can be used as an activity driver?

• Market trends

• Direct labor hours

• Customer feedback

• Employee satisfaction

What is the ultimate goal of allocating costs by department?

• To determine the total profitability or resource usage of each department

• To increase the overall budget of the organization

• To ensure all departments have equal costs

• To eliminate indirect costs entirely