If One Were Using the "Full-Cost" Approach to Marketing Cost

question 90

Multiple Choice

If one were using the "full-cost" approach to marketing cost analysis, then allocating fixed costs on the basis of sales volume would:

• A) make some customers appear more profitable than they actually are.
• B) not be done-because only variable costs would be analyzed.
• C) make some products appear less profitable than they actually are.
• D) decrease the profitability of the whole business.
• E) Both make some customers appear more profitable than they actually are and make some products appear less profitable than they actually are are true statements.

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Definitions:

One-Year Period

A timeframe of twelve consecutive months used for financial reporting, planning, and assessment purposes.

Accrual Basis

An accounting method where revenues are recorded when earned and expenses are recorded when incurred, regardless of when cash is exchanged.

Recognizes Revenues

The process of recording revenue in the financial statements when it is earned and realizable, in accordance with the revenue recognition principle.

Expense Recognition Principle

Accounting principle that dictates expenses should be recognized in the period in which they are incurred to generate revenues.