Two Alternative Methods of Accounting for the Cost of Oil

question 37

Multiple Choice

Two alternative methods of accounting for the cost of oil and gas properties have been widely used.The method that capitalizes all costs associated with all wells is the

• A)successful-efforts method
• B)full-cost method
• C)variable-cost method
• D)specific-cost method

---

Definitions:

Economies of Scale

Refers to the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, leading to a decrease in the per-unit cost as output increases.

Diseconomies of Scale

The situation in which the cost of producing each individual unit rises when a company's production volume grows, often resulting from inefficiencies and a rise in complexity.