When is a volume-based cost system appropriate for a service company?
A)A volume-based cost system is always appropriate for a service company.
B)A volume-based cost system is never appropriate for a service company.
C)A volume-based cost system is appropriate for a service company when certain customers require more attention and a higher level of service than other customers.
D)A volume-based cost system is appropriate for a service company when every customer places a similar demand on the company's resources.

Question

Quizplus · Accepted Answer

A volume-based cost system is appropriate for a service company when every customer places a similar demand on the company's resources. This means that the cost of providing the service is directly related to the volume or level of service provided, and therefore it makes sense to allocate costs based on this volume. However, if certain customers require more attention and a higher level of service than others, then a volume-based cost system may not be appropriate. In this case, a more customized or activity-based cost system might be more suitable.

When Is a Volume-Based Cost System Appropriate for a Service