Question

Why shouldn't common costs be allocated to segments based on the rationale that "someone has to cover the common costs"?

A) To ensure that every segment pays its fair share of costs.

B) To simplify the cost allocation process.

C) To encourage cost-sharing and collaboration among segments.

D) To avoid distorting the profitability assessment of individual segments.

Answer 1

Common costs should not be allocated to segments based on the rationale that "someone has to cover the common costs" in order to avoid distorting the profitability assessment of individual segments.

Step-by-step explanation:

The rationale behind not allocating common costs to segments based on the argument that "someone has to cover the common costs" is to avoid distorting the profitability assessment of individual segments. Allocating common costs to segments based solely on the fact that they need to be covered can unfairly burden certain segments and lead to inaccurate profitability analysis. Instead, cost allocation methods should be used to ensure that each segment pays its fair share of costs, to simplify the cost allocation process, and to encourage cost-sharing and collaboration among segments.