What is broad$$ averaging, and what consequences can it have on$$ costs?

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Part $1$

What is broad$$ averaging?

A$.$

Broad averaging describes a costing approach that allocates indirect costs to cost objects based on the budgeted average indirect cost rates multiplied by the budgeted quantities of the$$ cost$-$allocation bases.

B$.$

Broad averaging describes a costing system that uses direct costs to assign the cost of resources directly to cost objects.

C$.$

Broad averaging describes the method of calculating the average fixed manufacturing overhead cost of each unit produced or service performed.

D$.$

Broad averaging describes a costing approach that uses broad averages for assigning the cost of resources uniformly to cost objects.

Part $2$

What is a possible consequence of using broad averaging to calculate unit$$ costs?

A$.$

By ignoring the variation in the consumption of resources by different cost$$ objects, broad averaging can lead to inaccurate product costing.

B$.$

By ignoring the allocation of indirect costs to the cost$$ objects, broad averaging can lead to product overcosting.

C$.$

Broad$$ averaging, which ignores actual average indirect cost$$ rates, can lead to product overcosting or product undercosting.

D$.$

Broad averaging does not take into account variable cost$$ components, and$$ therefore, this method is unable to provide meaningful data when estimating costs across various levels of activity.