A Level Accounting (9706)•9706/12/M/J/25

Explanation
Overhead allocation assigns indirect costs to production for accurate product costing
Steps:
- Define overhead allocation as distributing indirect costs like utilities and supervision to cost objects.
- Identify that the primary goal is tracing these costs to production departments where products are made.
- Compare choices: A matches direct assignment to production; others focus on sharing between departments.
- Select A as it aligns with standard cost accounting practice.
Why A is correct:
- Overhead allocation assigns indirect costs to specific production departments to determine full product costs, per cost accounting principles like absorption costing.
Why the others are wrong:
- B: Sharing costs between production departments is a secondary step, not the core purpose of allocation.
- C: Sharing between service departments involves interdepartmental allocation, not the main overhead purpose.
- D: Identical to C, incorrectly limits to service departments only.
Final answer: A
Topic: Traditional costing methods
Practice more A Level Accounting (9706) questions on mMCQ.me