Question

QUESTION 4

1. Suppose a marketing manager wishes to allocate activity costs to product lines. The first step in such an allocation process is:

		Determine the total number of allocation units.
		Select an appropriate allocation basis for distributing the cost of each activity among the product lines.
		Estimate the net profit for each product line.
		Determine the total costs associated with each advertisement, each sales call, each order processed, etc.
		Determine total costs associated with each territorial sales office.

I guessed Determine the total number of allocation units. It was wrong.

Answer 1

The first step to allocate activity costs to product lines is to Select an appropriate allocation basis for distributing the cost of each activity among the product lines.

Appropriate cost drivers are selected for each activity and activity costs for each activity are distributed based on actual usage of cost drivers among the product lines.

For example, for purchasing materials activity, the appropriate cost driver would be number of orders placed.

Option B is correct