A Small Company Has One Factory but Produces Several Different

Multiple Choice

A small company has one factory but produces several different products.
It has direct material and direct labour costs which are allocated to the different products directly.
The factory is machine intensive,rather than labour intensive.
It also has overheads such as rent,rates and electricity costs.
As well as the factory,it also has a staff canteen and a maintenance department.
Which of the following statements about Absorption Costing is INCORRECT?

A) Where possible, costs should be directly allocated, such as direct material and direct labour in producing each product.
B) Costs that cannot be allocated may be apportioned, for example rent based on floor area.
C) Other overheads such as maintenance and canteen costs may be absorbed using machine hours.
D) Overheads that are incurred in overhead areas cannot be absorbed - eg maintenance of the canteen