The Absorption-Cost Approach Is Used by Most Companies for All

question 120

Multiple Choice

The absorption-cost approach is used by most companies for all of the following reasons except that

• A) absorption cost information is readily provided by a company's cost accounting system.
• B) absorption cost provides the most defensible bases for justifying prices to interested parties.
• C) basing prices on only variable costs could encourage managers to set too low a price to boost sales.
• D) this approach is more consistent with cost-volume-profit analysis.

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Definitions:

Operating Activities

Activities related directly to the production, sale, and delivery of a company's products and services, as reflected in its cash flow.

Cash Collected

The total amount of money received by a company from its various sources during a particular period, including sales, investments, and financing activities.

Cash Equivalents

Short-term investments with original maturities of three months or less that are readily convertible to cash and whose value is unlikely to change.