The Major Disadvantage of the Account Classification Method Is

question 57

Multiple Choice

The major disadvantage of the account classification method is

• A) While some cost items will exactly correspond to a fixed or variable cost, other cost items will not.
• B) The difficulty associated with implementing it.
• C) Small companies may have an expansive account list making the task hard.
• D) Incorrectly classifying costs could lead to minor errors in cost estimates.

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Definitions:

Accounting Rate of Return

A financial metric used to assess the profitability of an investment, calculated by dividing the average return from an investment by the initial cost.

Profitability Index

A financial tool used to determine the desirability of an investment, calculated as the present value of future cash flows divided by the initial investment cost.

Internal Rate of Return

A financial metric that estimates the profitability of potential investments by calculating the discount rate that makes the net present value of all cash flows from a project equal to zero.

Internal Rate of Return

The discount rate at which the net present value of all cash flows from a project equals zero, used to assess the profitability of potential investments.