Question

What are indications that a product cost system needs revision?

1) Inaccurate cost allocations
2) Significant variances between actual and expected costs
3) Inefficient use of resources
4) All of the above

Answer 1

A product cost system may need revision if there are inaccurate cost allocations, significant variances between actual and expected costs, and inefficient use of resources.

Step-by-step explanation:

Indicators that a product cost system needs revision include inaccurate cost allocations, significant variances between actual and expected costs, and inefficient use of resources. All these factors can point to a need for system overhaul because they can lead to poor decision-making, mispricing of products, and squander potential profits. Accurate breakdown of total costs into fixed cost, marginal cost, average total cost, and average variable cost provides critical insight, helping firms adjust pricing and production to maximize profitability.