When Is It Not Appropriate to Use an Encumbrance System

question 21

Multiple Choice

When is it not appropriate to use an encumbrance system?

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

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Definitions:

Elastic

Describes a situation in which the demand or supply for a good or service significantly changes in response to a change in price.

Inelastic

Describes a situation where the demand or supply for a good or service is unresponsive to changes in price.

Equilibrium Quantity

The amount of goods or services available that matches the amount desired by consumers at the price where supply and demand balance.