Question

What is the reason for using a longer period in cost allocation?

1) To increase the accuracy of cost allocation
2) To decrease the accuracy of cost allocation
3) To simplify the cost allocation process
4) To complicate the cost allocation process

Answer 1

Using a longer period for cost allocation typically aims to simplify the process by reducing the frequency of calculations and smoothing periodic expense fluctuations, though it may reduce accuracy.

Step-by-step explanation:

The reason for using a longer period in cost allocation is usually to simplify the cost allocation process. When businesses spread costs over more prolonged periods, such as annual versus monthly, they reduce the frequency and complexity of the calculations required for allocating costs.

This approach can help with budgeting, forecasting, and planning as it smoothens periodic fluctuations in expenses, making financial management more straightforward. However, this simplification could potentially reduce the accuracy of cost allocation by masking the actual occurrence of expenses within shorter time frames.