The Concept of Allocable costs means they must be assignable based on what criteria?

Allocable costs are those expenses that can be assigned to a specific project or cost objective based on a reasonable and consistent method. The correct choice indicates that allocable costs must be assignable based on relative benefits received or other equitable relationships. This means that costs should be distributed in a way that reflects the actual benefit derived from their use in relation to the specific project or activity.

For example, if a company incurs costs for materials that are used primarily in one specific project, those costs can be allocated to that project. This helps ensure that the financial statements more accurately reflect the resources consumed in relation to the benefits derived from those resources.

Assignments based on relative benefits ensure fairness and transparency in cost allocation. This approach allows for clearer financial tracking and aids in decision-making regarding budget management and resource allocation.

Other criteria, such as employee hours worked, market conditions, or internal policies, may influence how costs are assessed, but they do not focus directly on the equitable relationship of benefits received which is central to the concept of allocable costs. Therefore, using the criterion of relative benefits or equitable relationships aligns with the principles of cost allocation.