Question

Which of the following is true about normal costing?a.Actual overhead costs are not assigned directly to jobs in normal costing.b.The applied overhead is not calculated on a job specific basis in normal costing.c.Normal costing does not solve the problems associated with actual costing.d.Normal costing uses only the indirect costs of direct materials.e.All of these choices are correct.

Answer 1

Answer: The correct option is letter A: Actual overhead costs are not assigned directly to jobs in normal costing.

Explanation:

Normal costing only includes components such as;  the actual cost of materials, the actual cost of labor and manufacturing overhead (or standard overhead rate) .

Therefore, no actual overhead costs are assigned directly to jobs in normal costing.  

We may confuse actual overhead costs and standard overhead costs but the difference that we can find between the standard overhead cost and the actual overhead cost is that you can either charge the difference to the cost of goods sold (for smaller variances) or prorate the difference between the cost of goods sold and inventory.