Consider the following statements. Traditional costing systems can produce distorted product costs if:
i. overheads are driven by non-volume factors.
ii. overheads are a minor part of the product cost.
iii. it fails to recognise non-manufacturing costs as product costs.
Which of the statements is true?
A) i
B) ii
C) iii
D) i and iii

Question

Quizplus · Accepted Answer

Statement i is true as traditional costing systems commonly use a single cost driver, such as direct labor hours or machine hours, to allocate overhead costs to products. This method can produce distorted product costs if there are non-volume factors driving overhead costs, such as the number of quality checks or the complexity of the product. 
Statement iii is also true as traditional costing systems usually only allocate manufacturing overheads as product costs and fail to recognize non-manufacturing costs, such as marketing or administrative expenses, that are also incurred to produce the product. Statement ii is not true as overhead costs are a significant part of the product cost and should not be ignored in the traditional costing system.

Consider the Following Statements