When Is It NOT Appropriate to Use an Encumbrance System

question 20

Multiple Choice

When is it NOT appropriate to use an encumbrance system?

• A)When only a small part of expenditures for goods and services are discretionary.
• B)When there is a significant lag between purchase orders and the receipt of goods.
• C)When reporting is done on a yearly basis.
• D)When commitments are made on a decentralized basis.

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Definitions:

Productive Efficiency

A situation where an economy or a production entity cannot produce more of one good without sacrificing production of another good and by using the least costly production techniques.

Long-Run Adjustments

The process by which firms adjust their production levels, input mixes, and operations to reflect changes in the market or economic conditions over a longer period.

Allocative Efficiency

A state of the economy in which production represents consumer preferences; in other words, every good or service is produced up to the point where the last unit provides a utility level equal to the cost of producing it.

Marginal Benefit

The incremental enjoyment or advantage received from the consumption or creation of one more unit of a good or service.