When the "full-cost approach" to marketing cost analysis is used, allocating fixed costs on the basis of sales:
A) may make low-volume customers appear more profitable than they are.
B) increases each customer's contribution margin.
C) decreases the profitability of the whole business.
D) makes large-volume customers appear more profitable that they are.
E) increases the profitability of the whole business.

Question

Quizplus · Accepted Answer

Allocating fixed costs on the basis of sales may make low-volume customers appear more profitable than they are since they are not contributing much to covering the fixed costs but are still being allocated a portion of those costs. This can lead to a distorted view of the profitability of customers and the business as a whole.

When the "Full-Cost Approach" to Marketing Cost Analysis Is Used