Which of the following is a disadvantage of a dual-rate method?
A) It allocates fixed costs on the basis of budgeted long-run usage may tempt some managers to underestimate their planned usage.
B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest.
C) It allocates fixed and variable-cost pool using the same cost-allocation base, which will mislead managers in making decisions.
D) It does not guide department managers to make decisions that benefit both the organization as a whole and each department.

Question

Quizplus · Accepted Answer

The fixed costs allocated under a dual-rate method are based on budgeted long-run usage, which may cause managers to underestimate their planned usage. This can lead to inaccuracies in cost allocation and may result in poor decision-making. The other options do not describe a significant disadvantage of a dual-rate method.

Which of the Following Is a Disadvantage of a Dual-Rate