Question

The basic problem with the average-cost approach is that it :

A. does not consider cost variations at different levels of output.
B. does not consider historical values.
C. does not add a reasonable markup to the average cost of a product.
D. is not commonly used.
E. is a complex method

Answer 1

The correct answer is (A)

Step-by-step explanation:

Average cost approach is utilised to analyse the average cost of inventory available for sale. There are various advantages of using average cost techniques, but at the same time it has few limitations. Average cost methods do not account for the cost variation in different level of outputs. Cost variation is important to account for as it can change the overall cost of estimations, and cost averages.