One Disadvantage of Average-Cost Pricing Is That

question 107

Multiple Choice

One disadvantage of average-cost pricing is that

• A)average-cost pricing does not consider historical values.
• B)average-cost pricing is a highly complicated method.
• C)the average cost is rarely useful information in making pricing decisions.
• D)it is easy to lose money with average-cost pricing.
• E)average-cost pricing does not help understand how costs operate at different levels of output.

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Definitions:

Accounts Receivable

Amounts outstanding from customers to a company for goods or services provided but still unpaid.

Sales on Credit

Sales on Credit refer to transactions where the buyer is allowed to pay for goods or services at a later date, making the sale based on trust that payment will be made in the future.

Lockbox Plan

A cash management tool in which incoming cheques for a firm are sent to post office boxes rather than to corporate headquarters. A local bank will collect the contents of the lockbox and deposit the cheques into the company’s local account.

Net Positive Float

The excess of funds available for use due to the time difference between when a check is deposited and when it clears.