A Normal Costing System Uses Actual Costs for Direct Materials

question 8

Multiple Choice

A normal costing system uses actual costs for direct materials and direct labor, and:

• A)Actual costs for factory overhead.
• B)Estimated factory overhead costs based on material cost.
• C)Estimated factory overhead costs based on labor cost.
• D)Estimated costs for factory overhead.
• E)Charges actual factory overhead as a lump sum.

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Definitions:

Revenue

The total income generated by a company from its usual business activities, usually from the sale of goods and services to customers.

Spending Variance

A financial metric that indicates the difference between the budgeted or planned amount of spending and the actual amount spent.

Flexible Budget

A budget that is adaptable and varies according to the changes in activity level or volume.

Net Operating Income

The profit generated from a company's core business operations, excluding deductions of taxes and interest.