Question

Broad averaging (or "peanut-butter costing") describes a costing approach that uses broad averages for assigning (or spreading, as in spreading peanut butter) the cost of resources uniformly to cost objects when the individual products or services, in fact, use those resources in non-uniform ways. What is the term used to describe this costing approach?

1) Broad costing
2) Uniform costing
3) Peanut-butter costing
4) Non-uniform costing

Answer 1

Peanut-butter costing refers to a method where costs are averaged out and uniformly applied to products or services, despite their actual varied resource utilization. This contrasts with detailed allocations based on true usage patterns.

Step-by-step explanation:

The term used to describe the costing approach that uses broad averages to uniformly assign the cost of resources to cost objects, even when the actual resource consumption is non-uniform, is peanut-butter costing. Peanut-butter costing simplifies the allocation of costs by spreading them equally, much like spreading peanut butter evenly on a slice of bread. This approach contrasts with more precise costing methods that would allocate costs based on the actual use of resources by each cost object.

Understanding different measures of costs, such as fixed cost, marginal cost, average total cost, and average variable cost, is crucial for firms because they provide unique insights into the firm's spending patterns and help in decision-making. Costs can be measured per unit as average cost, defined as the total cost divided by the quantity of output, or as marginal cost, which is the cost of producing one more unit of output. These concepts are fundamental in managerial accounting and cost management strategies.