Final answer:
A company would use multiple cost-allocation bases if the perceived benefits of more accurate cost allocations outweigh the extra costs and complexity of the system. It's a strategic decision grounded in cost/benefit and marginal analysis, designed to improve the accuracy of cost data for informed decision-making.
Step-by-step explanation:
A company would use multiple cost-allocation bases primarily A) if managers believed the benefits exceeded the additional costs of that costing system. This decision relies on the basis of a cost/benefit analysis, where the additional information gained from using multiple cost-allocation bases must outweigh the complexity and costs associated with implementing such a system. Utilizing multiple bases can lead to a more accurate assignment of overhead costs to products or services, as different activities may consume resources in varying proportions.
For instance, a company may use machine hours to allocate costs for machine-intensive activities, and direct labor hours for labor-intensive activities. This allocation enhances the precision of cost information, which can be particularly vital for decision-making processes such as pricing, budgeting, and financial reporting. It aligns with the principle of cause and effect, ensuring that costs are assigned based on their actual drivers.
However, despite the potential for increased accuracy, resorting to multiple cost-allocation bases can complicate the accounting process. This complexity underscores the importance of the marginal analysis principle, which suggests only adopting multiple bases if the marginal benefits in terms of decision-making quality and financial control exceed the marginal costs of a more complex accounting process. Managers may also consider how changes in production affect marginal revenue and marginal cost when determining whether the detailed insights offered justify the additional expense and effort.
Options B), C), and D) offer less compelling reasons for a company to choose multiple cost-allocation bases and do not necessarily consider the cost/benefit tradeoff that is central to effective managerial decision-making.