Final answer:
Using a longer period in the indirect cost pool is mainly to mitigate seasonal fluctuations, which in turn helps to accurately allocate costs and enhances the precision of cost estimates. It may also align with industry standards and improve long-term financial planning.
Step-by-step explanation:
The reason for using a longer period in the indirect cost pool is to reduce the impact of seasonal fluctuations. This helps in accurately allocating indirect costs over different time periods, ensuring a fair distribution of costs that do not distort the actual cost picture due to seasonal changes. By doing this, businesses can increase the accuracy of cost estimates, making their financial planning and analysis more reliable.
Moreover, this approach can align with industry standards, particularly in businesses with significant seasonality where it's crucial to smooth out the costs throughout the year to get a clearer picture of long-term profitability and operational efficiency. This consideration is an essential aspect of understanding the relationship between production and costs, as every factor of production has its corresponding factor price, which can vary based on seasonal shifts.When using a longer period in the indirect cost pool, the numerator reason is to accurately allocate indirect costs. By using a longer period, it helps to smooth out any fluctuations that may occur in the short-term, such as seasonal variations. This allows for a more accurate representation of the overall indirect costs incurred