When calculating activity cost rates,management should use:
A)normal capacity utilisation.
B)budgeted capacity utilisation.
C)practical capacity.
D)None of the above.

Question

Quizplus · Accepted Answer

Practical capacity refers to the maximum capacity that can be achieved realistically, given the constraints and limitations of a production process. Therefore, using practical capacity to calculate activity cost rates provides a more accurate reflection of the actual costs incurred in producing a given output. Using budgeted or normal capacity may underestimate or overestimate the costs, respectively, and therefore can lead to incorrect pricing and decision-making.

When Calculating Activity Cost Rates,management Should Use