Question

Which of the following statements is true of an actual cost system?

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

Answer 1

The correct statement about an actual cost system is that it uses actual costs for direct materials, direct labor, and overhead costs. Unlike predetermined costing systems, it does not estimate costs in advance.

Step-by-step explanation:

When discussing an actual cost system, we are referring to a method of accounting that records the actual costs incurred for direct materials, direct labor, and overhead costs. Therefore, the true statement regarding an actual cost system is as follows:

• It uses actual costs for direct materials, direct labor, and overhead costs.

This distinguishes it from systems that use predetermined or estimated costs. Variable costs, such as materials and labor, change with output levels, while fixed costs, like rent, remain constant regardless of production levels. By understanding these concepts, we can appreciate the intricacies of different costing systems, like an actual cost system, and how they provide insights for a firm.