Select the Incorrect Statement Regarding Upstream and Downstream Costs

question 132

Multiple Choice

Select the incorrect statement regarding upstream and downstream costs.

• A) Companies normally incur significant downstream costs.
• B) To be profitable, companies must recover the total cost of developing, producing, and delivering products.
• C) Pricing decisions must consider both upstream and downstream costs in addition to manufacturing costs.
• D) Upstream and downstream costs are reported as product costs on the income statement.

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Definitions:

Traditional Costing

An accounting method that applies indirect costs to products based on a predetermined overhead rate.

Activity-Based Costing

An accounting method that assigns costs to products or services based on the activities they require, aiming for more accurate costing.

Overhead Rate

A calculation used to allocate overhead costs to produced goods or services, typically based on a specific activity base such as labor hours or machine hours.

Predetermined Overhead Rate

A rate calculated at the beginning of the period by dividing estimated total overhead costs by an estimated allocation base, used to apply overhead costs to products or services.