Which of the Following Is Not True About the Cause-And-Effect

question 191

Multiple Choice

Which of the following is not true about the cause-and-effect criterion when estimating a cost function?

• A) Correlation of variables proves cause-and-effect
• B) Managers must be careful not to equate high correlation between two variables to mean that either variable causes the other
• C) Knowledge of operations can help managers discover cause-and-effect relationships
• D) Contractual arrangements may show a direct cause and effect between two variables

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Definitions:

Overreliance On Volume

The high dependency on sales volume to drive profit, risking profitability if volume decreases.

Overhead Applied

The allocation of manufacturing overhead to individual products or job orders based on a predetermined rate.

Actual Activity

The real measure of the volume of production or operation activities undertaken by a company within a specified period.

Estimated Overhead Cost

Estimated overhead cost refers to a projection or forecast of the total indirect expenses that will be incurred during a specified period in the production process.