In the cause and effect relationship between cost level and cost driver, the inflationary price effects are removed by dividing cost through _______________?
Correct answer: B. price index
- A. cost index
- B. price index
- C. profit index
- D. cost driver index
Explanation
To remove changes caused by inflation, the recorded cost is adjusted by dividing it by an appropriate price index. This converts costs to a comparable price-level basis.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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