Question

Core Rentals has begun a new system of allocating costs according to the tasks their employees perform and the amount of time they spend on the particular tasks. This practice adopted by Core Rentals is referred to as ____.

A. unit-based accounting

B. time-based auditing

C. task accounting

D. activity-based costing

E. allocation costing

Answer 1

Core Rentals' practice of allocating costs based on tasks and time is called activity-based costing (ABC). It provides a more accurate way of assigning costs by identifying specific activities and allocating costs based on their usage.

Step-by-step explanation:

The practice adopted by Core Rentals of allocating costs according to the tasks their employees perform and the amount of time they spend on the particular tasks is referred to as activity-based costing (ABC).

In activity-based costing, costs are assigned to specific activities and then allocated to products, services, or customers based on the usage or consumption of those activities. It provides a more accurate and detailed way of assigning costs compared to traditional volume-based costing methods.

For example, if Core Rentals wanted to determine the cost of maintaining their rental fleet, they would identify the activities involved in fleet maintenance (such as oil changes, tire replacements, and inspections) and allocate the costs based on the amount of time spent on each activity.