Which of the following statements is true? Indicators of problems with product cost systems exist when:
i. non-manufacturing costs that are product related become insignificant.
ii. the proportion of manufacturing overhead not driven by production volume increases.
iii. there is an increase in product diversity.
A) i
B) ii
C) iii
D) ii and iii

Question

Quizplus · Accepted Answer

When non-manufacturing costs that are product related become insignificant, it suggests that the product cost system is not accurately reflecting the product cost. This is an indicator of a problem with the system. Similarly, when there is an increase in product diversity, the product cost system may struggle to accurately allocate costs to different products, indicating a problem. The proportion of manufacturing overhead not driven by production volume increasing is also an indicator of a problem with the system. Therefore, options ii and iii are correct.

Which of the Following Statements Is True? Indicators of Problems