AGA Examination 2: Governmental Accounting, Financial Reporting and Budgeting (GAFRB) GAFRB Question # 11 Topic 2 Discussion
GAFRB Exam Topic 2 Question 11 Discussion:
Question #: 11
Topic #: 2
When determining the full costs of a specific product or service, if the costs cannot be directly traced to the product or service, the costs should be assigned based upon
A.
a direct labor relationship.
B.
an opportunity cost approach.
C.
an incremental or marginal relationship.
D.
a cause-and-effect relationship between resource costs and outputs.
When full costs cannot be directly traced to a product or service, indirect costs must be allocated using a rational and systematic basis. The preferred method is to use a cause-and-effect relationship between the resource consumed and the output generated. This aligns with cost accounting principles under FASAB SFFAS No. 4 and managerial accounting frameworks.
Other options, such as direct labor or opportunity cost approaches, may be helpful in specific settings but do not meet the standard requirement for full cost allocation.
Answer: D. a cause-and-effect relationship between resource costs and outputs
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