Asked by Jagmeet Sahota on Jun 24, 2024
Verified
Consider the following statements regarding traditional costing systems.
i. All overhead costs are assumed to be driven by volume of production.
ii. All product costs are direct costs.
iii. Traditional costing systems tend to distort product costs when numerous products are made that vary in their production requirements.
Which statement/s is/are true?
A) i
B) ii and iii
C) i and iii
D) ii
Volume Of Production
The total number of units produced within a given period by a manufacturing entity.
Traditional Costing Systems
Costing methods that allocate overhead costs based on a predetermined rate, often using direct labor hours or machine hours as the allocation base.
- Recognize the constraints of conventional costing methods and the situations in which they lead to skewed product pricing.
Verified Answer
BG
Britni GurganusJun 27, 2024
Final Answer :
C
Explanation :
Statement i is true as traditional costing systems assume that overhead costs are driven by the volume of production. Statement ii is false as traditional costing systems assume that all product costs are not direct costs, but are instead indirect costs (such as overhead costs). Statement iii is true as traditional costing systems tend to distort product costs when there are numerous products that vary in production requirements. This is because traditional costing systems allocate overhead costs based on a single cost driver, which does not account for variations in production requirements among different products.
Learning Objectives
- Recognize the constraints of conventional costing methods and the situations in which they lead to skewed product pricing.
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