Question

Organizations are motivated to use multiple indirect cost pools instead of single indirect cost pools when:

a. Manufacturing overhead costs are difficult to control.
b. The cost drivers for the multiple indirect cost pools are different from the cost driver of the single indirect cost pool.
c. Multiple indirect cost pools are needed to conform to external reporting requirements.
d. None of the above.

Answer 1

Multiple indirect cost pools are used when the cost drivers are different from a single indirect cost pool, allowing for more accurate cost allocation and better decision-making within an organization. Option b

Step-by-step explanation:

When organizations are motivated to use multiple indirect cost pools instead of a single indirect cost pool, it is typically because the cost drivers for the multiple indirect cost pools are different from the cost driver of the single indirect cost pool.

Using multiple indirect cost pools allows organizations to allocate costs more accurately and reflect the different factors that drive these costs.

For example, a manufacturing company may have different cost drivers for manufacturing overhead costs related to different production departments or activities. By using multiple indirect cost pools, the company can assign costs to each department or activity based on their specific cost drivers. This enables better cost control and decision-making within the organization.

In contrast, if a company's manufacturing overhead costs are relatively easy to control and do not have significantly different cost drivers, it may not be necessary to use multiple indirect cost pools. Option b