Question

The method of managerial judgment in determining the cost behavior uses a manager's

A) skills in determining practical capacity
B) ethical focus to determine step-variable costs and step-fixed costs
C) past observation to distinguish flexible resources and committed resources
D) experience and past observation of cost relationships to determine fixed and variable costs
E) none of the above

Answer 1

The method of managerial judgment in cost behavior uses a manager's past observation to distinguish between flexible and committed resources.

Step-by-step explanation:

The method of managerial judgment in determining the cost behavior uses a manager's observation to distinguish between flexible resources and committed resources. This method involves the manager using their past experiences and knowledge to make judgments about how costs will behave in the future.

For example, let's say a manager has observed that the cost of materials tends to increase when production levels are high, indicating a variable or flexible cost. On the other hand, the manager has noticed that the cost of rent remains constant regardless of production levels, indicating a fixed or committed cost.

Therefore, by relying on their past observations, managers can categorize costs as either flexible or committed, which helps in making decisions about resource allocation and cost management.