The major reason for using practical capacity as the denominator for activity driver calculations is to:
A)avoid distortions induced by the assignment of unused capacity costs to the products produced or customer served.
B)simplify the calculations of the activity cost drivers.
C)reduce the cost of unused capacity.
D)place less emphasis on the cost of unused capacity.

Question

Quizplus · Accepted Answer

Using practical capacity as the denominator for activity driver calculations helps to avoid distortions induced by the assignment of unused capacity costs to the products produced or customer served. This enables a more accurate calculation of the cost of activities, and hence, the cost of products or services. It also helps in identifying the actual cost drivers of activities and facilitates better decision-making.

The Major Reason for Using Practical Capacity as the Denominator