If a firm uses activity-based costing to allocate costs, it must:
A) Combine costs in appropriate pools.
B) Select appropriate cost drivers.
C) Calculate an appropriate rate for each pool.
D) Allocate costs based on predetermined rates for cost pools.
E) Perform all of these steps.

Question

Quizplus · Accepted Answer

When a firm uses activity-based costing to allocate costs, it must perform all of the given steps. It needs to combine costs in appropriate pools, select appropriate cost drivers, calculate an appropriate rate for each pool, and allocate costs based on predetermined rates for cost pools. Therefore, the best choice is E, which covers all the necessary steps.

If a Firm Uses Activity-Based Costing to Allocate Costs, It