Part 1
Study Unit 6
Cost Allocation Techniques
Jim Clemons, CMA
Absorption versus Variable Costing
• You need to be able to answer the following:
– Under absorption costing, which cost are considered product
cost? Which costs are considered period cost?
– In the variable costing, which costs are considered product cost?
Which costs are considered period cost?
– What income statement format is appropriate for variable cost?
– When is income of the variable costing higher than income and
absorption costing?
– What format can be used to calculate the difference between
income under variable costing and income and absorption
costing?
– What managerial behavior does variable costs were render
ineffective?
6.1 Absorption and Variable Costing Theory
Overview
Product cost consist of all the costs incurred the production of a
product: direct materials, direct labor, and manufacturing
overhead.
The process to classified all these costs as part of product costs is
referred to as absorption costing (or full costing).
Absorption costing is the cost accumulation method required by
generally accepted accounting principles (GAAP) for external
reporting, and by regulatory body such as the Internal Revenue
Service.
continued
6.1 Absorption and Variable Costing Theory
Overview
The main reason is that absorption costing satisfies the
matching principle, which states that expenses should
be matched with revenues they generate.
Based on the matching principle, our product cost flow
through raw materials inventory, work in process
inventory, and finished goods inventory until the goods
are sold.
6.1 Absorption and Variable Costing Theory
Overview
One thing you have to ask yourself is, if inventory unit
costs combined variable cost (typically direct materials,
direct labor, and overhead) with fixed cost (typically
overhead), how can managers make sound decisions?
One way is to use variable costing (or direct costing) in
which only variable product costs are accumulated in the
inventory accounts.
In variable costing, fixed manufacturing overhead is
treated as a period expense rather than product cost,
meaning it is expensed in the period in which it is
incurred.
6.1 Absorption and Variable Costing Theory
Overview
The main advantage other variable costing
method is that income cannot be manipulated
by management action, whereas management
can manipulated income when using absorption
method.
Absorption Costing
Sales
- Product Costs (incl. fixed and variable)
= Gross Margin
- Total S, G & A (fixed and Variable)
Variable Costing
Sales
- Product Cost (only variable cost)
= Contribution Margin (portion available to cover fixed
costs
- Fixed Costs (both mfg. and S, G & A)
- Under variable costing, fixed overhead is considered a
cost of maintaining capacity, not a cost of producing a
product.
- Contribution margin will tell you if you are covering at
least the direct product costs
6.1 Absorption and Variable Costing Theory
• See comparison shown on page 92
6.1 Absorption and Variable Costing Theory
• Impact on Operating Income
– Produced = Sold = no difference in income
– Produced > Sold > income
• When production exceeds sales, fewer fixed cost are expensed
under the absorption basis, and operating income always
increases.
• A production manager can thus increase absorption-based
operating income by increasing production, whether there is any
customer demand for the additional product or not.
• This practice, called producing for inventory, can be effectively
discouraged by using variable costing for performance reporting
and consequent bonus calculation.
6.1 Absorption and Variable Costing Theory
– Produced < Sold < income
• Variable costing will show a higher income in periods when
inventories decline because absorption method forces the
subtraction of all of the current fixed costs, plus some fixed
costs incurred (and capitalized) in prior periods.
• Most importantly, in using variable costing, profits always
move in the same direction as sales volume. Profits
reported on absorption costing behave erratically and
sometimes move in the opposite direction from sales
trends.
6.1 Absorption and Variable Costing Theory
SU 6.1 Question 1
Question 1 - CMA1 Study Unit 3:
Cost Allocation Techniques
Which method of inventory costing
treats direct manufacturing costs and
manufacturing overhead costs, both
variable and fixed, as inventoriable
costs?
A.
Direct costing.
B.
Variable costing.
C.
Absorption costing.
D.
Conversion costing.
SU 6.1 Question 1 Answer
Correct Answer: C
Absorption (full) costing considers all manufacturing costs to be inventoriable
as product costs. These costs include variable and fixed manufacturing costs,
whether direct or indirect. The alternative to absorption is known as variable
(direct) costing.
Incorrect Answers:
A: Variable (direct) costing does not inventory fixed overhead.
B: Variable (direct) costing does not inventory fixed overhead.
D: Conversion costs include direct labor and overhead but not direct
materials.
SU 6.1 Question 2
Question 2 - CMA1 Study Unit 3: Cost
Allocation Techniques
Huntington Corporation pays bonuses to its
managers based on operating income, as
calculated under variable costing. It is now 2
months before year end, and earnings have
been depressed for some time. Which one
of the following actions should Wanda
Richards, production manager, definitely
implement if she desires to maximize her
bonus for this year?
A.
B.
C.
D.
Step up production so that more
manufacturing costs are deferred into
inventory.
Cut $2.3 million of advertising and marketing
costs.
Postpone $1.8 million of discretionary
equipment maintenance until next year.
Implement, with the aid of the controller, an
activity-based costing and activity-based
management system.
SU 6.1 Question 2 Answer
Correct Answer: C
Because the production manager wishes to maximize her bonus for the coming year,
the action she must take will necessarily have most of its effect in the short run. The
action she should take to achieve this goal is to defer costs under her control until the
following period.
Incorrect Answers:
A: The perverse incentive to “produce for inventory” only works under absorption
costing.
B: The production manager has no control over advertising and marketing costs.
D: Activity-based costing and activity-based management require time, effort, and
resources in the short run and only show benefits over the long run.
6.2 Absorption and Variable Costing - Calculations
6.2 Absorption and Variable Costing - Calculations
• See extended example on page 94
Variable Costing Practical Exercise
Variable Costing Practical Exercise Solutions
6.1 Absorption and Variable Costing Theory
continued
• Other benefits of variable costing:
– Variable costing is better suited for management's needs
which requires a knowledge of cost behavior under various
operating conditions. For planning and control,
management is more concerned with treating fixed and
variable costs separately than with calculating full cost.
– Full costs are usually dubious value because they contain
arbitrary allocation of fixed cost.
– The production manager cannot manipulate income levels
over overproducing.
continued
6.1 Absorption and Variable Costing Theory
–
–
–
–
The cost data for profit planning and decision-making are readily available from
accounting records and statements under variable costing. For example cost
profit relationships and the effects of changes in sales volume on that income
can easily be computed from income statement prepared under the variable
costing concept, but not from the conventional absorption costing income
statement based on the same data.
Absorption cost income statements may show decreases in profits from sales
and rising and increases in profits from sales or decreasing, which may be
confusing to management.
A favorable margin in the variable costing justifies a higher production level.
Variable costing is also preferred over absorption costing for studies of relative
profitability of products, territories, and other segments of a business. A
concentrate on the contribution of each segment makes to the recovery of
fixed costs that will not be altered by decisions to make and sell.
continued
6.1 Absorption and Variable Costing Theory
• Inventory changes have no effect on the breakeven computation.
• Disinvestment decisions are facilitated because were their product
or department is recouping its variable cost can be determined. If
the variable costs are being covered operating a department at
apparent loss may be profitable.
• Cost figures are guided by the sales figures. Under variable costing
cost of goods sold very directly with sales volume, and the influence
of production of gross profit is avoided.
• There will costing also eliminates a possible difficulties have explain
over and under applied factory overhead to higher management.
SU 6.2 Question 1
• Question 1 - CMA1 Study Unit 3: Cost Allocation
Techniques
• A manufacturing company employs variable costing for
internal reporting and analysis purposes. However, it
converts its records to absorption costing for external
reporting. The Accounting Department always
reconciles the two operating income figures to assure
that no errors have occurred in the conversion. The
fixed manufacturing overhead cost per unit was based
on the planned level of production of 480,000 units.
Financial data for the year are presented below:
SU 6.2 Question 1 Answer (continued)
Budget
Actual
Sales (in units)
495,000
510,000
Production (in units)
480,000
500,000
Variable
Absorption
Costing
Costing
Variable costs
$10.00
$10.00
Fixed manufacturing overhead
0
6
Total unit manufacturing costs
$10.00
$16.00
SU 6.2 Question 1 (continued)
The difference between the
operating income calculated under
the variable costing method and the
operating income calculated under
the absorption costing method would
be
A.
$57,600
B.
$60,000
C.
$90,000
D.
$120,000
SU 6.2 Question 1 Answer
Correct Answer: B
The difference between variable costing and absorption costing is that the former
treats fixed manufacturing overhead as a period cost. The latter method treats it as a
product cost. Given that sales exceeded production, both methods expense all fixed
manufacturing overhead incurred during the year. However, 10,000 units (510,000
sales – 500,000 production) manufactured in a prior period were also sold. These units
presumably were recorded at $10 under variable costing and $16 under absorption
costing. Consequently, absorption costing operating income is $60,000 (10,000 units ×
$6) less than that under variable costing.
Incorrect Answers:
A: The amount of $57,600 equals 10,000 units times $5.76 per unit (total budgeted
fixed manufacturing overhead ÷ 500,000 units).
C: The amount of $90,000 is the difference between planned sales (495,000 units)
and actual sales (510,000 units), times the fixed manufacturing overhead per unit ($6).
D: The amount of $120,000 is the volume variance under absorption costing.
SU 6.2 Question 2
Question 2 - CMA1 Study Unit 3: Cost Allocation Techniques
Pontotoc Industries manufactures a product that is used as a subcomponent by
other manufacturers. It has the following price and cost structure:
Selling price
$300
Costs
Direct materials
$40
Direct labor
30
Variable manufacturing overhead
24
Fixed manufacturing overhead
60
Variable selling
6
Fixed selling and administrative
20
Operating margin
-180
$120
SU 6.2 Question 2 (continued)
What will the contribution margin
per unit be if the company sells
10,000 units?
A.
$206
B.
$200
C.
$140
D.
$120
SU 6.2 Question 2 Answer
Correct Answer: B
Contribution margin is the excess of sales over variable costs. Sales will be at
$300 per unit. Variable costs are $100, consisting of $40 of direct materials,
$30 of direct labor, $24 of variable overhead, and $6 of variable selling costs.
Thus, the contribution margin will be $200 per unit ($300 – $100).
Incorrect Answers:
A: Excluding variable selling costs results in $206.
C: Including fixed manufacturing overhead results in $140.
D: This amount is the operating margin.
6.3 Joint Product and By-Product
• Joint processing and the split off point
– Joint (common) cost are those costs incurred up
to the point where products become separately
identifiable, called the split off point. They can
include direct materials direct labor and
manufacturing overhead, and must be allocated
to the individual joint products.
– Separable cost and be identified with a particular
joint product and allocated to a specific unit of
output.
6.3 Joint Product and By-Product
• Since joint cost cannot be traced to individual
products, they must be allocated. There
essentially four methods of doing so:
1. Physical-measure-based approach
2. Market-based approach
1. Sales value at split off method
2. Estimated net realizable value method
3. Constant gross margin percentage NRV method
6.3 Joint Product and By-Product
• See examples on page 187 - 189
6.3 Joint Product and By-Product
• By-products - Are products of relatively small total
value that are produced simultaneously from a
common manufacturing process with products of
greater value and quantity.
– If additional processing and selling cost exceed the selling
price they should be scrapped.
– If they can be processed further at a gain than the
question becomes are the byproduct material, and if so
they should be capitalized in a separate inventory account,
which essentially reduces the cost of goods sold.
– If the byproducts are immaterial after further processing
their not recognize until the time of sale.
SU 6.3 Question 1
Question 1 - CMA1 Study Unit 3: Cost
Allocation Techniques
In joint-product costing and analysis,
which one of the following costs is
relevant when deciding the point at which
a product should be sold to maximize
profits?
A.
B.
C.
D.
Separable costs after the split-off point.
Joint costs to the split-off point.
Sales salaries for the period when the units
were produced.
Purchase costs of the materials required for
the joint products.
SU 6.3 Question 1 Answer
Correct Answer: A
Joint products are created from processing a common input. Joint costs are
incurred prior to the split-off point and cannot be identified with a particular
joint product. As a result, joint costs are irrelevant to the timing of sale.
However, separable costs incurred after the split-off point are relevant
because, if incremental revenues exceed the separable costs, products should
be processed further, not sold at the split-off point.
Incorrect Answers:
B: Joint costs have no effect on the decision as to when to sell a product.
C: Sales salaries for the production period do not affect the decision.
D: Purchase costs are joint costs.
SU 6.3 Question 2
Question 2 - CMA1 Study Unit 3:
Cost Allocation Techniques
The primary purpose for allocating
common costs to joint products is to
determine
A.
The selling price of a by-product.
B.
Whether one of the joint products
should be discontinued.
C.
The variance between budgeted and
actual common costs.
D.
The inventory cost of joint products for
financial reporting.
SU 6.3 Question 2 Answer
Correct Answer: D
Joint products must be valued for external financial reporting purposes based on the
full (absorption) cost of the product. Any common costs attributable to the joint
production process must therefore be allocated on a systematic and rational basis.
Incorrect Answers:
A: The selling price of a by-product is determined by market forces outside the
manufacturer’s control, not by the manufacturer’s cost structure.
B: The decision to discontinue a joint product is based on the incremental profit
from that product, not the allocation of common costs.
C: A variance between budgeted and actual costs is scrutinized regardless of the
method of allocating common costs.
6.4 OH and Normal Costing
• All manufacturing costs that are not DM/DL
• MOH = Factory OH = Indirect Pdt Cost (Indirect
Materials, Indirect Labor, Supplies, Utilities,
Insurance, Taxes, Depreciation)
• Costs outside the product cost (G&A, Selling)
are not inventoriable in COGS = P&L
• DL and DM are purely variable costs
• OH contains both Variable and Fixed costs
What is Normal Costing?
•
Normal costing is used to derive the cost of a product.
It includes the following components:
–
–
•
•
Actual cost of materials
Actual cost of labor
A standard overhead rate that is applied using the
product's actual usage of whatever allocation base is
being used (such as direct labor hours or machine
time)
If there is a difference between the standard overhead
cost and the actual overhead cost, then you can either
charge the difference to the cost of goods sold (for
smaller variances) or prorate the difference between
the cost of goods sold and inventory.
What is Normal Costing?
• Normal costing is designed to yield product costs that
do not contain the sudden cost spikes that can occur
when you use actual overhead costs; instead, it uses a
smoother long-term estimated overhead rate.
• It is acceptable under generally accepted accounting
principles and international financial reporting
standards to use normal costing to derive the cost of
a product.
• Normal costing varies from standard costing, in that
standard costing uses entirely predetermined costs
for all aspects of a product, while normal costing uses
actual costs for the materials and labor components.
Other Definitions
•
•
•
Normal costing uses a predetermined annual overhead rate to assign
manufacturing overhead to products. In other words, the overhead
rate under normal costing is based on the expected overhead costs
for the entire accounting year and the expected production volume
for the entire year.
Under actual costing each month’s actual costs and each month’s
actual production volume are used to assign overhead costs. Since
most companies will experience month to month fluctuations in
activity, the actual monthly overhead rates will likely vary from
month to month.
Normal costing will result in an overhead rate that is more uniform
and realistic for all of the units manufactured during an accounting
year.
MOH = definition
•
•
Manufacturing overhead (also referred to as factory overhead,
factory burden, and manufacturing support costs) refers to indirect
factory-related costs that are incurred when a product is
manufactured. Along with costs such as direct material and direct
labor, the cost of manufacturing overhead must be assigned to each
unit produced so that Inventory and Cost of Goods Sold are valued
and reported according to generally accepted accounting principles
(GAAP).
Manufacturing overhead includes such things as the electricity used
to operate the factory equipment, depreciation on the factory
equipment and building, factory supplies and factory personnel
(other than direct labor). How these costs are assigned to products
has an impact on the measurement of an individual product's
profitability.
MOH = definition
• Nonmanufacturing costs (sometimes referred to as
“administrative overhead”) represent a manufacturer’s
expenses that occur apart from the actual
manufacturing function. In accounting and financial
terminology, the nonmanufacturing costs include
Selling, General and Administrative (SG&A) expenses,
and Interest Expense. Since accounting principles do
not consider these expenses as product costs, they are
not assigned to inventory or to the cost of goods sold.
Instead, nonmanufacturing costs are simply reported
as expenses on the income statement at the time they
are incurred.
Manufacturing Overhead
On financial statements, each product must include the
costs of the following:
• Direct material
• Direct labor
• Manufacturing (or factory) overhead
According to generally accepted accounting principles
(GAAP), manufacturing overhead must be included in the
cost of Work in Process Inventory and Finished Goods
Inventory on a manufacturer’s balance sheet, as well as
in the Cost of Goods Sold on its income statement
Manufacturing Overhead
• As their names indicate, direct material and
direct labor costs are directly traceable to the
products being manufactured. Manufacturing
overhead, however, consists of indirect factoryrelated costs and as such must be divided up and
allocated to each unit produced. For example, the
property tax on a factory building is part of
manufacturing overhead. Although the property
tax covers an entire year and appears as one large
amount on just one tax bill, GAAP requires that a
portion of this amount be allocated or assigned
to each product manufactured during that year.
Examples:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Material handlers (forklift operators who move materials and units).
People who set up the manufacturing equipment to the required
specifications.
People who inspect products as they are being produced.
People who perform maintenance on the equipment.
People who clean the manufacturing area.
People who perform record keeping for the manufacturing processes.
Factory management team.
Electricity, natural gas, water, and sewer for operating the manufacturing
facilities and equipment.
Computer and communication systems for the manufacturing function.
Repair parts for the manufacturing equipment and facilities.
Supplies for operating the manufacturing process.
Depreciation on the manufacturing equipment and facilities.
Insurance and property taxes on the manufacturing equipment and facilities.
Safety and environmental costs.
Steps for Analysis
• Cost Driver  allocation base (cause-and-effect
relationship)
• It can be direct machine or labor hours
• Calculating the application rate
• Recording Actual Overhead Costs
• Allocating OH to WIP
• Over and Under applied Overhead
Over – Under applied:
• If variance is immaterial: directly allocated to
COGS
• If variance is material: allocated based on
relative values of WIP, Finished goods, COGS
Activity-Based Costing
• Indirect costs are attached to activities
rather than simply dumped in one or two
indirect cost pools
• More accuracy and greater detail regarding
OH
• More complex and costly to implement
Examples
• Page 194 – review example
• Page 194 – Extended examples
SU 6.4 Question 1
Question 1 - CMA1 Study Unit 3: Cost Allocation Techniques
Nash Glassworks Company has
budgeted fixed manufacturing
overhead of $100,000 per month. The
company uses absorption costing for
both external and internal financial
reporting purposes. Budgeted overhead
rates for cost allocations for the month
of April using alternative unit output
denominator levels are shown in the
next column.
Capacity Levels
Budgeted
Budgeted
Denominator Level
Overhead
(units of output)
Cost Rate
Theoretical
1,500,000
$0.07
Practical
1,250,000
0.08
Normal
775,000
0.129
Master-budget
800,000
0.125
Actual output for the month of April was 800,000 units of glassware.
SU 6.4 Question 1 (continued)
A.
Normal capacity.
B.
Expected annual activity.
C.
Theoretical capacity.
D.
Master-budget capacity.
SU 6.4 Question 1 Answer
Correct Answer: C
Theoretical (ideal) capacity is the maximum capacity given continuous
operations with no holidays, downtime, etc. It assumes perfect
efficiency at all times. Consequently, it can never be attained and is
not a reasonable estimate of actual volume.
Incorrect Answers:
A: Normal capacity is the long-term average level of activity that
will approximate demand over a period that includes seasonal,
cyclical, and trend variations.
B: Expected annual activity is an approximation of actual volume
levels for a specific year.
D: Master-budget capacity is the expected level of activity used for
budgeting for a given year.
SU 6.4 Question 2
Question 2 - CMA1 Study Unit 3: Cost Allocation Techniques
Annual overhead application rates are used to
A.
Budget overhead.
B.
C.
Smooth seasonal variability of
overhead costs.
Simulate seasonal variability of
activity levels.
D.
Treat overhead as period costs.
SU 6.4 Question 2 Answer
Correct Answer:
B
Incorrect Answers:
A: Overhead must be budgeted before a rate can be
calculated.
C: Overhead application rates are used to smooth
seasonal variability of overhead costs.
D: An overhead rate applies overhead to the product.
SU 6.5 Question 1
Question 1 - CMA1 Study Unit 3: Cost Allocation
Techniques
Pane Company uses a job costing system and
applies overhead to products on the basis of direct
labor cost. Job No. 75, the only job in process on
January 1, had the following costs assigned as of
that date: direct materials, $40,000; direct labor,
$80,000; and factory overhead, $120,000. The
following selected costs were incurred during the
year:
SU 6.5 Question 1 (continued)
Traceable to jobs:
Direct materials
Direct labor
$178,000
345,000
Total
$523,000
Not traceable to jobs:
Factory materials and supplies
Indirect labor
Plant maintenance
Depreciation on factory equipment
Other factory costs
$46,000
235,000
73,000
29,000
76,000
Total
$459,000
SU 6.5 Question 1 (continued)
Pane’s profit plan for the year included budgeted direct labor of $320,000 and
overhead of $448,000. Assuming no work-in-process on December 31, Pane’s
overhead for the year was
A.
B.
C.
D.
$11,000 overapplied.
$24,000 overapplied.
$11,000 underapplied.
$24,000 underapplied.
SU 6.5 Question 1 Answer
Correct Answer: B
Pane applies overhead to products on the basis of direct labor cost. The
rate is 1.4 ($448,000 budgeted OH ÷ $320,000 budgeted DL cost). Thus,
$483,000 ($345,000 actual DL cost × 1.4) of overhead was applied, of
which $24,000 ($483,000 – $459,000 actual OH) was overapplied.
Incorrect Answers:
A: The amount of $11,000 equals the difference between budgeted
and actual overhead.
C: The amount of $11,000 equals the difference between budgeted
and actual overhead.
D: The overhead was overapplied.
SU 6.5 Question 2
Question 2 - CMA1 Study Unit 3: Cost Allocation Techniques
During the current accounting period, a manufacturing company
purchased $70,000 of raw materials, of which $50,000 of direct
materials and $5,000 of indirect materials were used in
production. The company also incurred $45,000 of total labor
costs and $20,000 of other manufacturing overhead costs. An
analysis of the work-in-process control account revealed $40,000
of direct labor costs. Based upon the above information, what is
the total amount accumulated in the overhead control account?
A.
B.
C.
D.
$25,000
$30,000
$45,000
$50,000
SU 6.5 Question 2 Answer
Correct Answer: B
Overhead consists of all costs, other than direct materials and
direct labor, that are associated with the manufacturing
process. The overhead control account should have the
following costs:
Indirect materials
Indirect labor ($45,000 – $40,000)
$ 5,000
5,000
Other overhead
20,000
Total overhead
$30,000
SU 6.5 Question 2 Answer (continue)
Incorrect Answers:
A: The amount of $25,000 excludes the indirect
materials.
C: The amount of $45,000 is the total labor cost.
D: The amount of $50,000 is the direct materials
cost.
Service Department Costs
•
•
•
•
Direct Method
Step-Down Method
Reciprocal Method
Single-rate Vs. Dual-Rate Allocation
Key concepts:
• Service Depart. = OH = not traced to cost
object = must be allocated to operating
Departs.
• Cause-&-effect relationship and/or benefits
received
• Review examples
• Page 128 #3.7
SU 6.6 Question 1
Question 1 - CMA1 Study
Unit 3: Cost Allocation
Techniques
In allocating factory service
department costs to
producing departments,
which one of the following
items would most likely be
used as an activity base?
A.
B.
C.
Units of product sold.
Salary of service department employees.
Units of electric power consumed.
D.
Direct materials usage.
SU 6.6 Question 1 Answer
Correct Answer: C
Service department costs are considered part of factory overhead and
should be allocated to the production departments that use the
services. A basis reflecting cause and effect should be used to allocate
service department costs. For example, the number of kilowatt hours
used by each producing department is probably the best allocation
base for electricity costs.
Incorrect Answers:
A: Making allocations on the basis of units sold may not meet the
cause-and-effect criterion.
B: The salary of service department employees is the cost allocated,
not a basis of allocation.
D: Making allocations on the basis of materials usage may not meet
the cause-and-effect criterion.
SU 6.6 Question 2
Question 2 - CMA1 Study Unit 3: Cost
Allocation Techniques
When allocating costs from one
department to another, a dual-rate costallocation method may be used. The
dual-rate cost-allocation method is most
useful when
A.
B.
Two or more cost pools are to be
allocated.
Two or more departments’ costs are to be
allocated.
C.
Two or more products are produced.
D.
Costs are separated into variable-cost and
fixed-cost subpools.
SU 6.6 Question 2 Answer
Correct Answer: D
The dual-rate method of allocating costs from one department to
another involves classifying the costs to be allocated into two pools,
one variable and one fixed.
Incorrect Answers:
A: The dual-rate method is used with exactly two cost pools, one
for fixed costs and one for variable costs.
B: Use of the dual-rate depends on cost behavior, not the number
of departments.
C: Use of the dual-rate depends on cost behavior, not the number
of products.