Consider the following statements regarding traditional costing systems.
i. All overhead costs are assumed to be driven by volume of production.
ii. All product costs are direct costs.
iii. Traditional 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 as traditional costing systems assume that overhead costs are driven by the volume of production. Statement ii is false as traditional costing systems assume that all product costs are not direct costs, but are instead indirect costs (such as overhead costs). Statement iii is true as traditional costing systems tend to distort product costs when there are numerous products that vary in production requirements. This is because traditional costing systems allocate overhead costs based on a single cost driver, which does not account for variations in production requirements among different products.

Consider the Following Statements Regarding Traditional Costing Systems