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During the current year, Kemp Construction Company built 23 custom homes that ranged in size from 2,500 square feet to 8,000 square feet. One home was completed each month during January, February, and March. Three homes were completed during April and May. Two homes were completed during each of the months from June through December. Based upon this information, the most appropriate allocation base (i.e., cost driver) for the assignment of indirect overhead costs to each house would be the:_________.

A. Number of homes built during the month.
B. Number of months in the year.
C. Number of homes built during the year.
D. Size of the home.

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hamzatauseef

Answer:

D. Size of the home.

Explanation:

The most appropriate cost allocation base would be to trace major activity driver in the building of homes. Since the homes ranges from 2500 to 8000 sq feet. The appropriate way to allocate costs would be on the basis of per square feet that takes in to account the size of the house. Kemp would be better of by tracing per sq feet costs as they allow a more closer version to activity based costing.

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