The advantage of using practical capacity to allocate costs:
A)is that it allows a downward demand spiral to develop
B)is that it focuses management's attention on managing unused capacity
C)is that budgets are much easier to develop
D)Either A or B are correct.

Question

Quizplus · Accepted Answer

Using practical capacity to allocate costs focuses management's attention on managing unused capacity, which can lead to more efficient operations and cost savings. Option A is incorrect because practical capacity helps avoid over-allocating costs and allows for a more accurate reflection of resources used, preventing a downward demand spiral. Option C is incorrect because practical capacity may require more detailed analysis and assumptions in budget development compared to more simplistic cost allocation methods.

The Advantage of Using Practical Capacity to Allocate Costs