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:

Straight-Line Method

The straight-line method is a technique of allocating an asset's cost evenly throughout its useful life, commonly used for depreciation and amortization calculations.

Salvage Value

The approximated market price of an asset upon completing its useful life.

Depreciation Expense

The allocated portion of the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.

Land Appraised

The assessed value of land determined by an appraiser, usually for the purposes of taxation, investment analysis, or sale.