Answer (C) is correct . Extended normal costing assigns both direct costs (such as labor and materials) and overhead to cost objects by using budgeted rates. The direct cost assigned equals the budgeted rate times the actual amount of the direct-cost input. The overhead assigned equals the budgeted rate times the actual amount of whichever driver or other base is used for cost assignment purposes. The use of budgeted rates for overhead as well as direct costs may be helpful to avoid fluctuations during the year. It is also helpful when some direct costs, such as direct labor, may not be known until year end.
Answer (A) is incorrect because Actual costing uses only actual direct and overhead costs.
Answer (B) is incorrect because Normal costing uses budgeted rates only for overhead costs.
Answer (D) is incorrect because Standard costing applies budgeted rates to the standard (not actual) inputs allowed.
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