The Statement That Is a Disadvantage of the Payback Method

question 52

Multiple Choice

The statement that is a disadvantage of the payback method of investment evaluation is:

• A)It disregards the time value of money.
• B)It disregards the post payback period cash flows.
• C)It is based on cash flows.
• D)Both A and B.

---

Definitions:

Sales

The total amount of income generated by the selling of goods or services by a company during a certain period.

Manufacturing Costs

Refers to the total expenses incurred in the process of producing a product, including raw materials, labor, and overhead costs.

Variable Costing

An accounting method that only includes variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs, treating fixed costs as period expenses.

Absorption Costing

An accounting method that includes all manufacturing costs (direct costs, fixed, and variable overheads) in the cost of a product.