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 support department services may be used more heavily by some products than others.b.Product costs may be inaccurate because incorrect cost drivers are used.c.Product costs may be inaccurate because straight-line depreciation on factory equipment is treated as a general and administrative expense on the income statement.d.Product costs may be inaccurate because direct labor and direct materials are not correctly accounted for in the product costing system.

Question
Asked Dec 9, 2019
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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 support department services may be used more heavily by some products than others.
b.Product costs may be inaccurate because incorrect cost drivers are used.
c.Product costs may be inaccurate because straight-line depreciation on factory equipment is treated as a general and administrative expense on the income statement.
d.Product costs may be inaccurate because direct labor and direct materials are not correctly accounted for in the product costing system.
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Expert Answer

Step 1

Product Costs refers to the costs incurred to manufacture a product involving the direct materials, direct labor and overheads. These costs are directly traced in the final product except overheads and is accounted for either as cost of goods sold (for the goods sold in the accounting period) or, as an asset in the form of inventory (for the goods not sold in the accounting period).

Step 2

Explanation:

Misguide about approach of considering support department costs to be facility-level costs is "Product costs...

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