Question

Which of the following statements is true of a normal costing system?

1. In a normal costing system, only the costs incurred for direct materials are used to determine unit cost.
2. In a normal costing system, only actual costs of direct materials, direct labor, and overhead are used to determine unit cost.
3. In a normal costing system, unit costs are determined by adding estimated direct materials, estimated direct labor, and actual overhead.
4. In a normal costing system, unit costs are determined by adding actual direct materials, actual direct labor, and estimated overhead.

Answer 1

Option number 4 is correct,In a normal costing system, unit costs are determined by adding actual direct materials, actual direct labor, and estimated overhead.

Step-by-step explanation:

This approach to costing that makes use of estimated overhead as against actual overhead is favored by Generally Acceptable Accounting Principles such as the International Financial Reporting Standards(IFRS) and the U.S GAAP in order to derive the unit cost of an item of inventory for financial reporting purposes.

This deviates completely from standard costing where the cost an item is entirely calculated from predetermined material,labor and overhead costs.