A Major Disadvantage of the Observation Method of Analyzing Cost

question 12

Multiple Choice

A major disadvantage of the observation method of analyzing cost behavior is:

• A)It bases its solution on only two observations.
• B)It results in its analyzed cost being treated as either fixed or variable,based on which type of behavior it more closely resembles.
• C)Two persons could draw different lines through the data points.
• D)It enables non-representative points,called outliers,to be identified.

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Definitions:

CCA Class

Capital Cost Allowance Class, categories used in Canadian tax law for determining the depreciation rate for tax purposes on assets.

Intermodal Transportation

The use of two or more modes of transportation in moving goods from origin to destination.

Operating Lease

A lease agreement that allows for the use of an asset but does not convey rights of ownership, typically used for short-term leases.

Lessor

The party in a lease agreement who owns the asset and grants the lessee the right to use the asset in exchange for rental payments.