Which formula correctly identifies the predetermined indirect cost rate in an activity-based costing system?
A)Actual indirect cost divided by the actual volume of the allocation base.
B)Estimated indirect cost divided by the actual volume of the allocation base.
C)Actual cost divided by the estimated volume of the allocation base.
D)Estimated indirect cost divided by the estimated volume of the allocation base.

Question

Quizplus · Accepted Answer

In an activity-based costing system, the predetermined indirect cost rate is calculated by dividing estimated indirect costs by the estimated volume of the allocation base. This formula helps to allocate indirect costs accurately to activities based on their usage of resources. Option A is incorrect as it uses actual values instead of estimated values, leading to inaccurate cost allocations. Option B uses estimated indirect costs but divides it by the actual volume of the allocation base, which does not provide an accurate cost allocation. Option C uses actual costs instead of estimated costs, resulting in an inaccurate cost allocation.

Which Formula Correctly Identifies the Predetermined Indirect Cost Rate in an Activity-Based