Question

Under the FASB Codification, the costs incurred for a joint activity may be allocated between fund-raising expenses and program expenses if the criteria of purpose, audience, and content are met. How are costs allocated for a joint activity?

Option 1: Between administrative expenses and program expenses
Option 2: Between fundraising expenses and program expenses
Option 3: Between research and development costs and administrative expenses
Option 4: Between selling and administrative expenses and program expenses

Answer 1

Costs incurred for a joint activity under FASB Codification can be allocated between fundraising expenses and program expenses, which is Option 2. This is different from fixed costs like rent, which do not vary with production levels.

Step-by-step explanation:

Under the Financial Accounting Standards Board (FASB) Codification, costs incurred for a joint activity may be allocated between certain expense categories if specific criteria are met. This allocation pertains to activities that have both fundraising and program components. According to FASB guidelines, if the purpose, audience, and content criteria are all met, the costs may be allocated between fundraising expenses and program expenses. Therefore, the correct answer to the question is Option 2: Between fundraising expenses and program expenses.

It's essential to distinguish this from fixed and variable costs. Fixed costs, like rent, do not change with the level of production or activity because they are tied to fixed inputs, whereas variable costs do change with activity levels.