Question

An actual cost system differs from a normal cost system in that an actual cost system:

a. assigns overhead as it occurs during the manufacturing cycle.
b. assigns overhead at the end of the manufacturing process.
c. does not assign overhead at all.
d. does not use an Overhead Control account.

Answer 1

An actual cost system assigns overhead as it occurs during the manufacturing cycle, ensuring accurate reflection of production costs, as opposed to a normal cost system which uses a pre-determined overhead rate.

Step-by-step explanation:

An actual cost system is different from a normal cost system in that an actual cost system assigns overhead costs as they are actually incurred during the manufacturing cycle, rather than using a pre-determined overhead rate as in the normal cost system. This means that with an actual cost system, the overhead is applied based on the actual direct labor hours, machine hours, or any other actual measure of activity, and thus the correct answer to the question is 'a. assigns overhead as it occurs during the manufacturing cycle.' This system ensures that the overhead assigned to each product is as accurate as possible, reflecting the true costs of production.