Question

Which of the following statements is true of normal costing?

a. It uses predetermined direct materials cost, predetermined direct labor cost, and actual overhead costs.
b. It measures costs of direct materials on a predetermined basis and uses actual costs for direct labor and overhead.
c. It measures overhead costs on a predetermined basis and uses actual costs for direct materials and direct labor.
d. It uses predetermined direct materials, direct labor, and overhead costs.

Answer 1

Normal costing measures overhead costs on a predetermined basis, using actual costs for direct materials and direct labor.

Step-by-step explanation:

Among the options given, the true statement of normal costing is that it measures overhead costs on a predetermined basis and uses actual costs for direct materials and direct labor. This means that under normal costing, the company uses a predetermined rate to estimate overhead costs at the beginning of the period, but actual amounts for direct materials and direct labor costs as they occur. Understanding the distinction between these methods is crucial for proper cost accounting and budgeting within a company.