Air conditioning costs incurred during the summer months will distort indirect-cost rates that are computed monthly.

Question

Quizplus · Accepted Answer

Air conditioning costs are overhead costs that are incurred during summer months and are not directly related to production. Since indirect costs are usually allocated based on a predetermined rate, the inclusion of air conditioning costs during summer months will cause an overstatement of indirect-cost rates for that particular month. This can distort the cost of goods sold and affect the accuracy of financial statements.

Air Conditioning Costs Incurred During the Summer Months Will Distort