Consider the following statements: I. Product diversity creates costing problems
ID: 2476932 • Letter: C
Question
Consider the following statements: I. Product diversity creates costing problems because diverse products tend to utilize manufacturing activities in different ways. II. Overhead costs that are not incurred at the unit level create costing problems because such costs do not vary with traditional application bases such as direct labor hours or machine hours. III. Product diversity typically exists when a single product (e.g., a ballpoint pen) is made in different colors. Which of the above statements is (are) true? I only. II only. I and II. I and III. II and III.
Explanation / Answer
Statements I and II are True.
Product diversity indeed uses the manufacturing activities in different ways, as the product is diverse because of its unique features. So, this poses costing problems.
Statement II is also true because overhead costs that are not traceable to unit level poses issues while allocating the costs, as the basis to allocate is not easy to locate.
Statement III is false because difference in colors does not amount to product diversifications.