Question

Which of the following types of costs is an allocated cost based on the use of the plant, equipment, and other fixed expenses needed to run the production operation?

A) corporate overhead costs
B) manufacturing overhead costs
C) variable costs
D) marketing sales and expenses
E) research and development expenses

Answer 1

The allocated cost based on the use of plant and equipment to run production is called manufacturing overhead costs. These costs are part of fixed costs, which do not change with the level of production.

Step-by-step explanation:

Among the options provided, manufacturing overhead costs represent the type of allocated cost based on the use of plant, equipment, and other fixed expenses needed to run the production operation. These are part of fixed costs, which remain constant regardless of the level of production within a company. Fixed costs include items such as rent on a factory, machinery, and other capital expenses required to maintain production capabilities.

Fixed costs are vital for any company to understand since they must be paid whether the company produces a high volume of goods or not. For businesses such as manufacturing, these costs can be substantial due to the expensive machinery and equipment involved. In contrast, service-oriented businesses or those that rent equipment on an as-needed basis may have lower fixed costs.