Final answer:
The primary criterion in the choice of an allocation base for indirect costs (manufacturing overhead) is to select a cost driver that has the strongest cause-and-effect relationship with the costs being allocated. The allocation base should have a strong correlation with the variation in indirect costs. This ensures that the costs are allocated in a fair and accurate manner.
Step-by-step explanation:
The primary criterion in the choice of an allocation base for indirect costs (manufacturing overhead) is to select a cost driver that has the strongest cause-and-effect relationship with the costs being allocated.
The allocation base should have a strong correlation with the variation in indirect costs. This ensures that the costs are allocated in a fair and accurate manner.
For example, if the indirect costs are driven by machine usage, the allocation base could be machine hours. By using machine hours as the allocation base, the costs can be allocated to different products or departments based on their actual machine usage.
Another criterion to consider is the practicality of obtaining accurate data for the chosen allocation base. It should be feasible to measure and track the allocation base regularly to ensure accuracy in cost allocation.