Which of the Following Is a Disadvantage of Single-Rate Method

question 83

Multiple Choice

Which of the following is a disadvantage of single-rate method?

• A) It is very costly to implement.
• B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest.
• C) It does not signal to department managers how variable costs and fixed costs behave differently.
• D) It requires managers to distinguish variable costs from fixed costs, which is often a challenging task.

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Definitions:

Inventory Turnover

A ratio showing how many times a company has sold and replaced inventory over a period.

Allowance For Doubtful Accounts

A contra-asset account that reduces the total receivables on the balance sheet by the amount expected not to be collected.

ROCE

Return on Capital Employed; a financial ratio that measures a company's profitability and the efficiency with which its capital is employed.

Operating Profit Margin

A profitability ratio calculated by dividing operating profit by total revenue, reflecting the percentage of revenue that is left over after paying for variable costs of production.