Apportioning Service Costs for Accurate Product Pricing

Steps:

• Identify service centres as support units (e.g., maintenance, HR) that incur costs without direct production.
• Recognize that production departments rely on these services, so costs must be allocated fairly.
• Apportion costs using bases like machine hours or headcount to reflect usage.
• Combine apportioned costs with direct costs for total product cost, aiding pricing decisions.

Why C is correct:

• In cost accounting, apportioning service costs to production ensures full absorption costing, where total costs (direct + indirect) form the basis for setting selling prices to achieve profitability.

Why the others are wrong:

• A: Apportionment tracks overall costs, not specifically as a managerial check.
• B: Cost effectiveness is assessed via budgets/variances, not apportionment.
• D: Apportionment distributes existing costs, not minimizes them.

Final answer: C