Question

Which of the following is an advantage of using managerial judgment to separate fixed and variable costs?

a. It eliminates the need for advanced data analytics.
b. It prohibits errors.
c. The level of understanding that the manager has of the specific company does not come into play.
d. It is very simple.

Answer 1

The advantage of using managerial judgment to separate fixed and variable costs lies in its simplicity and reliance on the manager's understanding of the company's operations, despite its susceptibility to errors.

Step-by-step explanation:

One advantage of using managerial judgment to separate fixed and variable costs is that it can be very simple. Contrary to employing advanced data analytics, managerial judgment relies on the knowledge and experience of the manager to classify costs based on the nature of the company's operations. However, the assertion that it prohibits errors is misleading; human judgment can indeed be prone to biases and inaccuracies. The understanding of the company plays a significant role, since managers use their insights and familiarity with business processes to split costs. Moreover, experts often have a good sense of the answer which can help identify possible mistakes.