Question

Which of the following statements is true of the managerial judgment method of determining cost behavior?

a. Managers use only the prior period's costs to determine cost behavior.
b. It is rarely used by managers to determine cost behavior.
c. It involves too many complications and calculations for separating costs.
d. Managers identify mixed costs and divide them into fixed and variable components.

Answer 1

The true statement about the managerial judgment method of determining cost behavior is that managers identify mixed costs and divide them into fixed and variable components, utilizing their experience and insights about the business.

Step-by-step explanation:

The statement that is true of the managerial judgment method of determining cost behavior is: Managers identify mixed costs and divide them into fixed and variable components. This method involves managers using their experience and knowledge of the business to make an educated estimate about cost behavior, rather than relying on a strict mathematical or statistical method. Managers look at costs that have both fixed and variable components, often referred to as mixed or semi-variable costs, and estimate how much of the cost is fixed regardless of activity levels and how much varies with changes in activity levels. Examples of mixed costs might include utility bills or salaries for employees who have a base salary plus commissions.