Multiple Choice Question (MCQ) | All Of The Following Are Reasons That Companies Prefer Normal Costing Except:

MCQ | All Of The Following Are Reasons That Companies Prefer Normal Costing Except:

The correct answer is (b) as the statement "Normal Costing (NC) tracks actual direct materials, actual direct labor costs, and actual manufacturing overhead costs" is partially false, as both methods Actual Costing (AC) and NC track actual direct material, actual direct labor costs but only NC uses predetermined rates to assign manufacturing overhead or Factory Overhead (FOH) costs, which may be inaccurate as compared to AC but NC method quickly informs the management about the costs of manufacturing overhead by using standard rates and quantities than the AC which takes more time to find out actual costs of direct material, direct labor and FOH. That is why companies prefer to use normal costing over actual costing due to other reasons such as the method of normal costing simplifies bookkeeping process, etc., mentioned in option (c), (a) and (d).