Multiple Choice How many cost pools and therefore overhead application rates should be used for Activity-Based...

Multiple Choice

How many cost pools and therefore overhead application rates should be used for Activity-Based Costing?

A. At least 10

B. The smallest number that effectively represent cost movement by cost drivers.

C. As many as possible

D. Always 3

Expert Solution

Based on the information available in the question, we can answer as follows:-

Option B - The smallest number that effectively represent cost movement by cost drivers is the correct answer. Under Activity Based costing, the cost pools represent the basis in which the overheads are allocated. Hence, it is beneficial for the comapny to allocate using the smallest number of cost pools that represent the cost movement by the cost drivers.

Option A and Option D is incorrect as there is no specific number with respect to the number of cost pools that should be present for Activity Based costing.

Option C is incorrect. It is not correct to have as many as possible cost drivers as it will create a discrepancy in the allocation of expenses. Hence, the number of cost drivers should be kept at the minimum in order to yield the best results under the Activity Based costing.

Please let me know if you have any questions via comments and all the best :) !

ekkarill92 answered 2 years ago

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