An activity-based costing system is developed in four steps:
a. Compute the predetermined overhead allocation rate for each activity b. Identify activities and estimate their total costs c. Identify the cost driver for each activity and then estimate the quantity of each driver's d. Allocate the indirect costs to the cost object Which of the following is the correct order for performing these steps? A. a, b, c, d B. b, a, c, d C. b, c, a, d D. c, a, b, d
Your question asks what order does a activity-based costing system work by.
b, c, a, d
1. b). Identify activities and estimate their total indirect costs.
2. c). Identify the allocation base for each activity and estimate the total quantity of each allocation base.
3. a). Compute the predetermined overhead allocation rate for each activity.
4. d). Allocate indirect costs to the cost object.
The reason why the answer choice "b, c, a, d" is the correct answer because that's the correct order for the activity-based costing system.
The activity-based costing system first identifies the activities that are going on and find the indirect cost, then identifies the allocation base for the activities that are occurring to find the quantity of the allocation base, then solve the pre-determined rate of allocation for each activity, and finally get the indirect cost for the object.
I hope this helps!Best regards,MasterInvestor