Final answer:
The statement is false; normal costing uses a predetermined indirect-cost rate to assign indirect costs, not an actual rate. Normal costing is important for firms to systematically apply overhead costs while considering the insights provided by different cost measures.
Step-by-step explanation:
The statement, "Normal costing assigns indirect costs based on an actual indirect-cost rate", is false. Normal costing assigns indirect costs based on a budgeted or predetermined indirect-cost rate, rather than an actual rate. This process involves estimating the indirect costs in advance, usually at the beginning of the year, based on expected activity levels and expenses. During the year, these budgeted rates are used to apply indirect costs to products or services. While normal costing utilizes actual direct costs, the overhead costs are allocated using the budgeted rate which may be adjusted to reflect actual activity at the end of the accounting period.
Breaking Down Costs
Understanding the breakdown of total costs into fixed, marginal, average total, and average variable costs is essential for businesses. This type of analysis provides valuable insights for the firm, especially when considering how indirect costs fit into the overall cost structure. Normal costing is a method that simplifies this process by providing a systematic way of applying overhead costs.