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How do we apportion indirect costs to cost centres?

A. Ignore indirect costs.
B. Allocate them randomly.
C. Use a systematic method.
D. Exclude them from accounting.

User Rich Ross
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1 Answer

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Final answer:

Indirect costs should be apportioned to cost centres using a systematic method that reflects the actual resource consumption by each cost centre, based on a suitable allocation base.

Step-by-step explanation:

To apportion indirect costs to cost centres, the correct approach is C. Use a systematic method. This involves identifying the most suitable basis for allocation, which can include direct labor hours, machine hours, or square footage, depending on the nature of the indirect cost and its relationship to the cost centres. The aim is to distribute the costs in a way that reflects the actual consumption of resources by each cost centre. Allocation bases should be rational and equitable to ensure fair distribution of overheads.

User Inopinatus
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