Normal costing uses
A)actual costs for direct materials, direct labour and variable and fixed overhead.
B)actual costs for direct materials, and direct labour, and a predetermined overhead rate for allocating variable and fixed overhead costs to production units.
C)actual costs for direct materials, direct labour and variable overhead, and a predetermined overhead rate for fixed overhead.
D)variable costing for direct materials, direct labour and variable overhead and a predetermined overhead rate for fixed overhead.

Question

Quizplus · Accepted Answer

Normal costing uses actual costs for direct materials and direct labour but applies a predetermined overhead rate to allocate overhead costs to the production units. This is because overhead costs can be difficult to directly trace to specific units of production, so a predetermined rate is used based on an estimation of the total overhead costs for a period divided by an estimation of the total amount of allocation base (such as direct labour hours or machine hours) for the same period. This method is used to provide a more accurate measure of the total cost of production.

Normal Costing Uses