One of the best arguments in favor of the full-cost approach to cost allocation is that:

Question

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The full-cost approach requires the allocation of all costs - direct and indirect - to products or marketing units, making management more aware of all costs. In contrast, the contribution-margin approach only considers direct costs and variable overhead, leading to a possible underestimation of true costs and less informed decision-making. Choice A is incorrect because establishing defensible bases of allocation can be challenging even with the full-cost approach. Choice B is incorrect because the full-cost approach may be more expensive and time-consuming due to the need to accumulate and allocate all costs. Choice C is incorrect because both approaches require allocation bases, which can be arbitrary to some extent. Choice E is incorrect because some costs may still be fixed in the long run.

One of the Best Arguments in Favor of the Full-Cost