Question

When the "full-cost approach" to marketing cost analysis is used, allocating fixed costs on the basis of sales:A. may make low-volume customers appear more profitable than they are.
B. increases each customer's contribution margin.
C. decreases the profitability of the whole business.
D. makes large-volume customers appear more profitable that they are.
E. increases the profitability of the whole business.

Answer 1

Answer:A. May make low volume customers appear more profitable than they are.

Explanation:

The allocation of fixed cost based on sales volume will increase cost allocated to large volume sales unit which will invariably reduce their profit and will reduce the cost allocated to low volume sales which may increase their profit.

It does not affect the overall firm profitability not customers contribution margin.