Question

Activity rates are determined by a. dividing the actual cost for each activity pool by the estimated activity base for that pool. b. dividing the cost budgeted for each activity pool by the estimated activity base for that pool. c. dividing the actual cost for each activity pool by the actual activity base for that pool. d. dividing the cost budgeted for each activity pool by the actual activity base in that pool.

Answer 1

Correct Answer: (b) dividing the cost budgeted for each activity pool by the estimated activity base for that pool

Activity Rate:

In the activity based costing, activity refers to an event that incurs cost. Example: storage, packing, inspection etc.Cost are allocated to the products based on the activities. Activity rate causes a change in the cost of an activity.

Cost Pool:

A group of various individual cost items are called cost pool. Example: Machine setup cost, inspection cost etc.