Question

Why might managers prefer to use normal costing? (Choose all that apply )

A. Normal costing enables Destin Products to use the budgeted manufacturing overhead rate determined at the beginning of the year to estimate the cost of a job as soon as the job is completed. Managers want to know job costs for ongoing uses, including pricing jobs, monitoring and managing costs, evaluating the success of the job, learning about what did and did not work, bidding on new jobs, and preparing interim financial statements.
B. Normal costing provides managers with information earlier-while there is still time to take corrective actions, such as improving the company's labor efficiency or reducing the company's overhead costs.
C. Normal costing provides managers with information at the end of a fiscal year when they know actual manufacturing overhead costs. This approach is preferable to managers to improve the company's spending efficiency and increase overall profits.
D. Normal costing provides managers to allocate overhead costs at the end of the accounting year. This allows Destin Products to use the normal costs incurred to provide an accurate costing method so that adjustments will not need to be made at the end of the accounting year.
E. Manufacturing costs of a job are available much earlier in a normal costing system. Consequently, Destin's manufacturing and sales managers can evaluate the profitability of different jobs, the efficiency with which the jobs are done, and the pricing of different jobs as soon as they are completed, while the experience is still fresh in everyone's mind.

Answer 1

Managers prefer normal costing because it provides immediate job cost estimates, earlier feedback for potential corrective actions, and helps in evaluating job profitability and efficiency shortly after completion.

Step-by-step explanation:

Managers might prefer to use normal costing for several reasons:

• A. Normal costing allows managers to estimate the cost of a job immediately after its completion using a predetermined overhead rate, which aids in various ongoing managerial functions such as pricing, cost monitoring, evaluating, learning, bidding, and preparing interim financial statements.
• B. It provides earlier feedback, enabling managers to take corrective actions if necessary, to improve processes like labor efficiency or overhead cost reduction.
• E. Normal costing results in earlier availability of manufacturing job costs, which in turn helps various managers to evaluate job profitability, efficiency, and pricing more effectively while the experiences are fresh.

Option C and D are not correct as they describe actual costing rather than normal costing. Normal costing uses budgeted rates throughout the year, whereas actual costing would wait until actual overhead costs are known at the year-end. Furthermore, in normal costing, overhead costs are applied throughout the year, not just at the end.