Question

The absorption-cost approach is used by most companies for all of the following reasons except that:______a) absorption cost information is readily provided by a company’s cost accounting system.b) basing prices on only variable costs could encourage managers to set too low a price to boost sales.c) this approach is more consistent with cost-volume-profit analysis.d) absorption cost provides the most defensible bases for justifying prices to interested parties

Answer 1

Answer:

c) this approach is more consistent with cost-volume-profit analysis.

Explanation:

The absorption costs does not separate the fixed costs and variable cost for profit determination.

This hence, is not adequate for internal purposes of as it does not provide management accountants of the changes in fixed and variable costs that arise as a result of changes in levels of sales demand.

Thus this method is not consistent with cost-volume-profit analysis.