Question

Actual costing and normal costing differ in their use of actual or budgeted indirect cost rates. Which of the following statements is true about the costing methods?

1) Actual costing uses actual indirect-cost rates and actual quantity of the cost-allocation base.
2) Normal costing uses budgeted indirect-cost rates and actual quantity of the cost-allocation base.
3) Actual costing uses actual indirect-cost rates and budgeted quantity of the cost-allocation base.
4) Normal costing uses budgeted indirect-cost rates and budgeted quantity of the cost-allocation base.

Answer 1

Actual costing uses actual indirect costs and the actual quantity of the cost base, while normal costing uses budgeted indirect costs but still uses the actual quantity of the cost base.

Step-by-step explanation:

The differences between actual costing and normal costing revolve around the type of indirect-cost rates and the measurement of the cost-allocation base used. When it comes to actual costing, it utilizes actual indirect-cost rates and actual quantity of the cost-allocation base. Conversely, normal costing employs budgeted indirect-cost rates together with the actual quantity of the cost-allocation base. Therefore, the correct statements among the given options are:

• Actual costing uses actual indirect-cost rates and actual quantity of the cost-allocation base.
• Normal costing uses budgeted indirect-cost rates and actual quantity of the cost-allocation base.

It is important to distinguish these methods as they provide businesses with different insights into cost control, pricing, and budgeting.

Answer 2

Actual costing uses actual indirect-cost rates and actual quantity of the cost-allocation base, while normal costing uses budgeted indirect-cost rates and actual quantity of the cost-allocation base.

Step-by-step explanation:

Actual costing and normal costing differ in their use of actual or budgeted indirect cost rates. The correct statement about the costing methods is:

Actual costing uses actual indirect-cost rates and actual quantity of the cost-allocation base.

In actual costing, the actual indirect-cost rate is used to allocate indirect costs, and the actual quantity of the cost-allocation base is used to determine the total indirect costs. This method provides a more accurate reflection of the actual costs incurred.

On the other hand, normal costing uses budgeted indirect-cost rates and actual quantity of the cost-allocation base. Budgeted rates are predetermined based on estimates and are used to allocate indirect costs. The actual quantity of the cost-allocation base is used to determine the total indirect costs.

Actual costing uses actual indirect-cost rates and actual quantity of the cost-allocation base.

Normal costing uses budgeted indirect-cost rates and actual quantity of the cost-allocation base.

Therefore, the true statements from the options provided are 1) for actual costing and 2) for normal costing. It is important to understand these concepts as they provide key insights into the cost structure of a firm, helping in decision-making related to production and pricing strategies.