Which of the following statements about normal costing is TRUE?
A)Direct costs and indirect costs are allocated using an actual rate.
B)Direct costs and indirect costs are traced using budgeted rates.
C)Direct costs are traced using a budgeted rate, and indirect costs are allocated using an actual rate.
D)Direct costs are traced using an actual rate, and indirect costs are allocated using a budgeted rate.
E)Direct costs are traced by using the actual direct-cost rate times the budgeted quantity of the direct costs input.

Question

Quizplus · Accepted Answer

Normal costing involves tracing actual direct costs using actual rates and allocating indirect costs using budgeted rates. Therefore, option D is the correct statement. Option A and B are incorrect as they either allocate or trace using only actual or budgeted rates. Option C is incorrect as it suggests tracing direct costs using budgeted rates, which is not the norm. Option E is incorrect as it suggests using the actual direct-cost rate times the budgeted quantity, which is not a standard practice in normal costing.

Which of the Following Statements About Normal Costing Is TRUE