Question

Annual cost rates are preferred over actual cost rates for all of the following reasons EXCEPT:

A) budgeted costs allow managers to have cost information on a timely basis
B) budgeted costs may be subject to short-run fluctuations
C) budgeted indirect-cost rates are known prior to the inception of a new job
D) budgeted-cost rates can be used to allocate direct or indirect costs

Answer 1

Annual cost rates are preferred because they allow for timely cost information and known budgeted indirect-cost rates, but 'budgeted costs may be subject to short-run fluctuations' is a disadvantage, not a reason for preference.

Step-by-step explanation:

Annual cost rates are preferred over actual cost rates for a variety of reasons, but not all of these reasons are advantages. Budgeted costs allow managers to have cost information on a timely basis, and budgeted indirect-cost rates are known prior to the inception of a new job, which can be highly beneficial for planning and control purposes. However, the option that does not represent a reason for preferring annual cost rates over actual cost rates is that 'budgeted costs may be subject to short-run fluctuations'. In fact, this is a potential disadvantage as it could lead to inaccurate or misleading cost analysis if short-term fluctuations significantly impact the budgeted costs.