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1 August, 21:59

If product costs are misclassified as selling costs, the average cost per unit will be understated. a. Trueb. False

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  1. 1 August, 23:27
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    Product costs are mostly prime costs (Variable cost). Now lets check where this misclassification occurs.

    There are 3 stages of absorption costing.

    Stage 1: Allocation

    Stage 2: Apportionment

    Stage 3: Absorption

    Misclassification of product cost of product A occurs at Stage 1.

    This means that the share of product cost of A, which is misclassified as selling cost will be equally shared with other products in the stage 2. This sharing of cost will lower the average cost per unit of product A and increase the average cost per unit of other products. Hence, Its true.
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