Consider the following statements.Conventional 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 because if overheads are driven by non-volume factors, such as quality or set-up costs, then using a volume-based allocation method will distort product costs. Statement iii is also true because non-manufacturing costs, such as marketing or distribution costs, should be recognized as product costs if they are related to the production of the product. Statement ii is not true because the size of overhead costs does not determine whether or not conventional costing systems will produce distorted product costs.

Consider the Following Statements