Apportioning Depreciation Using Activity-Based Measures

Steps:

• Identify depreciation as a fixed overhead cost allocated based on usage or capacity relevant to production departments.
• Evaluate bases: suitable ones reflect asset utilization like space or machine operation; unsuitable ones like headcount ignore asset-specific factors.
• Review options: 1 (floor area for buildings), 2 (machine hours for equipment), 3 (number of employees, irrelevant to asset wear), 4 (number of machines or value, ties to capacity).
• Select combination excluding irrelevant bases, yielding 1, 2, and 4.

Why B is correct:

• Bases 1, 2, and 4 align with cost accounting principles (e.g., CIMA guidelines) for equitable allocation based on asset consumption, ensuring production departments bear costs proportional to benefit received.

Why the others are wrong:

• A omits 4, under-allocating for machine-intensive departments.
• C excludes 1, ignoring building space usage.
• D includes 3 (employee count), which distorts allocation unrelated to depreciation drivers.

Final answer: B