Question

True or false

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.

Answer 1

For normal costing, indirect costs are indeed allocated to products based on the actual levels of the cost-allocation base, despite the budgeted rate being based on estimates. It ensures a more accurate reflection of resource usage.

Step-by-step explanation:

The statement that indirect costs are allocated to products using the actual levels of the cost-allocation base in normal costing is true. Even though the budgeted indirect-cost rate may be based on estimates, when applying normal costing, the actual amount of the cost-allocation base, such as direct labor hours or machine hours incurred during the period, is used to allocate indirect costs to products. This approach provides a more accurate cost per product by reflecting the actual usage of resources, notwithstanding the estimated rate.