Consider the following statements regarding conventional costing systems.i.All overhead costs are assumed to be driven by volume of production
Ii)All product costs are direct costs.
Iii)Conventional costing systems tend to distort product costs when numerous products are made that vary in their production requirements.Which statement/s is/are true?
A) i
B) ii and iii
C) i and iii
D) ii

Question

Quizplus · Accepted Answer

Statement i is true because conventional costing systems typically allocate overhead costs based on a predetermined rate applied to a measure of the volume of production, such as direct labor hours or machine hours.
Statement iii is also true because conventional costing systems allocate overhead costs using a single predetermined rate, which can lead to distortions in product costs when different products have different production requirements (e.g. some products may require more setup time or machine time than others).

However, statement ii is not true. In conventional costing systems, product costs include both direct costs (e.g. direct materials and direct labor) as well as an allocation of indirect overhead costs.

Consider the Following Statements Regarding Conventional Costing Systems