Which of the following statements regarding historical costs is correct?
A)Historical costs represent what the firm paid for an input when it was purchased, adjusted for inflation.
B)Historical costs vary depending on the method of depreciation a firm uses.
C)Historical costs are a good indicator of the current opportunity cost of a piece of capital.
D)Using historical costs can cause true economic profit to be under or over stated.

Question

Quizplus · Accepted Answer

Historical costs do not take into account changes in market prices or the opportunity cost of using a resource in a different way. Therefore, using historical costs can lead to under or overstatement of true economic profit.

Which of the Following Statements Regarding Historical Costs Is Correct