Question

Which of the following statements is true of normal costing?

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

Answer 1

The statement about normal costing that is true is that it measures overhead costs on a predetermined basis while using actual costs for direct materials and direct labor.

Step-by-step explanation:

The true statement about normal costing is that it measures overhead costs on a predetermined basis and uses actual costs for direct materials and direct labor. Therefore, among the options provided, the correct answer is: It measures overhead costs on a predetermined basis and uses actual costs for direct materials and direct labor.

Understanding various measures of costs, such as fixed cost, marginal cost, average total cost, and average variable cost, is essential for firms to gain insights into their cost structure. These measures provide details on a per-unit basis and offer a clearer picture for making decisions about production and pricing.

Average total cost, average variable cost, and marginal cost are each calculated differently and give different information about costs concerning units of output, not necessarily the total output, which explains why they are graphed separately from total costs.