Question

Which of the following are reasons for using longer periods, such as a year, to calculate indirect cost rates.

A) Numerator reason
B) Denominator reason
C) Both A and B
D) Neither A nor B

Answer 1

The correct answer is C) Both A and B because longer periods provide a more stable and representative indirect cost rate and allow for calculating average quantities over time, which is more accurate for recurring calculations like growth rates and inflation.

Step-by-step explanation:

The reasons for using longer periods, such as a year, to calculate indirect cost rates are related to both the numerator and denominator, therefore the correct answer is C) Both A and B. For the numerator reason, longer periods can more accurately account for fluctuations and variability in costs, providing a more stable and representative indirect cost rate. For the denominator reason, using longer periods like a year allows us to define quantity as the average quantity over the period in question rather than just the initial quantity. This approach aligns better with recurring calculations and provides a more accurate reflection of changes over time, such as calculating inflation rates using index numbers or the average annual growth in GDP.