The Major Weakness of "Average-Cost Pricing" Is That

question 200

Multiple Choice

The major weakness of "average-cost pricing" is that:

• A) it ignores likely customer demand at different prices.
• B) it usually leads to losses instead of profits.
• C) it always results in a profit that is less than expected.
• D) it is too hard for most managers to use.
• E) All of these are major weaknesses of "average-cost pricing."

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Definitions:

Capacity

The maximum level of output that a company can sustain to produce in a given period under normal circumstances.

Collateral

An asset that a borrower offers to a lender as a security for a loan, which can be seized if the loan is not repaid.

Credit Cost Curve

Graphical representation of the sum of the carrying costs and the opportunity costs of a credit policy.

Carrying Costs

Expenses associated with holding inventory, including storage, insurance, and opportunity costs.