An allocation base is a(n) ______ used to assign indirect costs to cost objects in the fundamental accounting equation.

• A. type of financial statement
• B. measure such as direct labor hours or machine hours
• C. form of owner's equity
• D. method of recording cash receipts

Answer: (B)

Verified step by step guidance

1. Understand the concept of an allocation base: It is a measure used to assign indirect costs to cost objects, such as direct labor hours, machine hours, or other activity-based measures.
2. Recognize that indirect costs are expenses that cannot be directly traced to a specific product or service but need to be allocated to cost objects for accurate cost accounting.
3. Identify examples of allocation bases, such as direct labor hours, machine hours, or units produced, which serve as a basis for distributing indirect costs proportionally.
4. Eliminate incorrect options: A type of financial statement, form of owner's equity, and method of recording cash receipts are unrelated to the concept of allocation bases.
5. Conclude that the correct answer is: 'measure such as direct labor hours or machine hours,' as this aligns with the definition and purpose of an allocation base in accounting.