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CMA Intermediate · Cost Accounting · Overheads

A factory building houses several production departments. Which basis is the most appropriate for apportioning the rent of the building to those departments?

Rent of the factory building should be apportioned on the floor area occupied by each department, because rent is incurred for the use of space and area is the closest measure of the benefit each department gets from the building.

  1. AFloor area occupied by each departmentCorrect
  2. BNumber of employees in each department
  3. CDirect labour cost of each department
  4. DBook value of machinery in each department

Explanation

Rent is a cost of occupying space, so the benefit each department receives is best measured by the floor area it occupies. Headcount and labour cost measure labour-related benefit, and machinery value suits depreciation or insurance of machines. None of these reflects the use of space.

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