Which of the Following Is a Disadvantage of Single-Rate Method

question 83

Multiple Choice

Which of the following is a disadvantage of single-rate method?

• A) It is very costly to implement.
• B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest.
• C) It does not signal to department managers how variable costs and fixed costs behave differently.
• D) It requires managers to distinguish variable costs from fixed costs, which is often a challenging task.

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Definitions:

Accrual Basis

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash transaction happens.

Revenue Recognition

The accounting principle that dictates the specific conditions under which income becomes realized as revenue.

Adjusting Entries

Journal entries made at the end of an accounting period to allocate income and expenditures to the period in which they actually occurred.

Prepayments

Payments made in advance for goods or services, which are recorded as assets on the balance sheet until the corresponding goods or services are received.