Which of the following is a drawback of dual-rate allocation?
I. It introduces uncertainty about cost classification
II. It costs more to develop and maintain than single-rate allocation
III. It may cause managers to believe that all support costs are variable
A) I and III only
B) I and II only
C) II and III only
D) I, II, and III

Question

Quizplus · Accepted Answer

Option I is a drawback of dual-rate allocation as it can introduce uncertainty about cost classification which can lead to errors in decision making. Option II is also a drawback because dual-rate allocation costs more to develop and maintain than single-rate allocation. However, option III is not a drawback of dual-rate allocation as it is not a direct consequence of using dual-rate allocation. It is possible for managers to understand that only some support costs are variable while others remain fixed, even with dual-rate allocation.

Which of the Following Is a Drawback of Dual-Rate Allocation