Question

In Week 7, the purpose is to allocate costs based on direct method. How do you do this?

Answer 1

To allocate costs based on the direct method, you need to follow a step-by-step process that involves determining the cost structure and calculating various cost metrics.

Step-by-step explanation:

To allocate costs based on the direct method, you need to follow a step-by-step process.

Step 1:

Determine the cost structure for the firm. This involves calculating the total fixed costs and variable costs.

Step 2:

Calculate the total cost, average variable cost, average total cost, and marginal cost using the formulas provided in the Production, Costs, and Industry Structure chapter (refer to Table 8.8).

By following these steps, you can accurately allocate costs based on the direct method.