Question

The most clear and unbiased basis for cost allocation exists when which one of the following can be determined?

-Benefit received.
-Cost shifting.
-Ability-to-bear.
-Cause-and-effect relationship.
-Equity share

Answer 1

The clearest and most unbiased basis for cost allocation exists with a cause-and-effect relationship as it establishes a direct link between the costs incurred and the benefits received, ensuring equity and reducing biases in decision-making.

Step-by-step explanation:

The most clear and unbiased basis for cost allocation exists when a cause-and-effect relationship can be determined. This relationship allows for a logical and fair method of distribution of costs based on the actual generation of costs. When considering cost benefit analysis, it is essential to weigh the marginal costs and marginal benefits to gauge the value of an additional unit, which aids in making informed decisions grounded in both ethical and economic considerations.

Especially in scenarios like just-war theory or local government elections, understanding the distribution of costs and benefits is crucial for ethical and practical decision-making. It provides a better indication of who should bear the costs by tying them directly to the benefits received, thereby reducing the likelihood of cost shifting and ensuring equity among payers.