In Using the Variable Cost Concept of Applying the Cost-Plus

question 162

True/False

In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and both fixed and variable selling and administrative expenses must be covered by the markup.

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Definitions:

Direct Write-off Method

A method of accounting for bad debts that charges the amount directly to expense when it is determined to be uncollectible.

Allowance Account

An accounting reserve set up to account for future adjustments such as bad debts or product returns.

Direct Write-off Method

An accounting method where uncollectible accounts receivable are directly written off against income at the time they are deemed non-collectable.

Allowance for Doubtful Accounts

An accounting provision representing the estimated portion of receivables that may not be collected.