Challenges only result from estimating the denominator level, but NOT the costs in the numerator of the fixed manufacturing cost rate.

Question

Quizplus · Accepted Answer

Challenges can arise both from estimating the denominator level (or activity base) and from estimating the costs in the numerator of the fixed manufacturing cost rate. This is because the fixed costs are not necessarily constant over different levels of activity, and may include mixed costs that are partly variable and partly fixed. Proper cost analysis and management requires careful estimation and tracking of both numerator and denominator components of cost rates.

Challenges Only Result from Estimating the Denominator Level, but NOT