A Business Which Enters into a Contract to Purchase a Product

Multiple Choice

A business which enters into a contract to purchase a product (or products) and will compensate the manufacturer under a cost reimbursement formula, should take an active part in the determination of how joint costs are allocated because:

A) the manufacturer will attempt to allocate as large a portion of its costs to these products
B) if the manufacturer successfully allocates a large portion of its costs to these products then it will be able to sell its other nonreimbursed products at lower prices
C) the FASB requires the business to participate in the cost allocation process
D) Both A and B are correct.