Asked by Kayden Ngenzi on May 30, 2024
Verified
Airco Company is tempted to consider support department costs to be facility-level costs that do not need to be applied to products. Which of the following explains what is misguided about this approach?
A) Product costs may be inaccurate because direct labor and direct materials are not correctly accounted for in the product costing system.
B) Product costs may be inaccurate because incorrect cost drivers are used.
C) Product costs may be inaccurate because support department services may be used more heavily by some products than others.
D) Product costs may be inaccurate because straight-line depreciation on factory equipment is treated as a general and administrative expense on the income statement.
Facility-level Costs
Costs that are incurred to maintain and operate a physical plant or facility, not directly tied to any specific product or service.
Support Department Costs
Indirect costs incurred by units or departments that do not directly produce goods or services but support those who do, such as human resources or IT departments.
Product Costs
Costs that are directly associated with the production of goods, including materials, labor, and overhead.
- Recognize the impact of incorrect overhead cost allocation on product costing.
Verified Answer
Learning Objectives
- Recognize the impact of incorrect overhead cost allocation on product costing.
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