The Best Method to Determining Weights for the Stand-Alone Revenue-Allocation

question 24

Multiple Choice

The best method to determining weights for the stand-alone revenue-allocation method is ________.

• A) selling prices revenue-allocation method because the weights explicitly consider the prices customers are willing to pay for the individual products
• B) unit cost revenue-allocation method because it can be used on all occasions
• C) the direct revenue-allocation method since selling prices or unit costs are difficult to calculate for individual products
• D) physical-units revenue-allocation method because the physical units explicitly value the prices customers are willing to pay for the individual products

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Definitions:

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, highlighting the impact of fixed costs.

Variable Expenses

Costs that vary directly with the level of production or sales volume.

Operating Income

Earnings before interest and taxes (EBIT), representing the profit from a company’s ordinary, core business operations.

Contribution Format

An income statement layout that separates fixed and variable costs, allowing for the calculation of contribution margin and easier analysis of profitability.