Assume the multiplier method is used and the multiplier is determined to be 3 based on experience. Accounting records show that the measured external failure costs are $400,000. Then the hidden external failure costs are estimated to be
A)$133,334.
B)$400,000.
C)$800,000.
D)$1,200,000.

Question

Quizplus · Accepted Answer

Using the multiplier method, the hidden external failure costs can be calculated as: 
Multiplier x Measured external failure costs = Hidden external failure costs 
3 x $400,000 = $1,200,000 
Therefore, the estimated hidden external failure costs are $1,200,000. The closest answer choice is C) $800,000. However, this is not the correct answer as it is lower than the calculation. The correct answer is therefore C) $1,200,000.

Assume the Multiplier Method Is Used and the Multiplier Is