Final answer:
The statement for normal costing regarding the allocation of indirect costs based on actual levels of the cost-allocation base is true. Normal costing uses a budgeted rate for estimates but applies actual usage for more accurate cost allocation. This process is vital for business pricing and profitability.
Step-by-step explanation:
For normal costing, even though the budgeted indirect-cost rate is based on estimates, indirect costs are allocated to products based on actual levels of the cost-allocation base. This statement is true. Normal costing involves two stages: firstly, overhead costs are estimated to determine the budgeted indirect-cost rate, and secondly, the actual amount of the cost-allocation base is used to apply these overhead costs to specific products or job orders.
Understanding the allocation of costs is critical in business for pricing and profitability analyses. Costs can be decomposed into fixed costs and variable costs. Fixed costs, such as rent or equipment, do not change with the level of production, while variable costs do vary in direct proportion to the level of production.
The use of actual levels in the allocation of indirect costs helps ensure that products are charged for the indirect resources they actually consume, leading to more accurate product costing and decision-making for the firm.