Department indirect-cost rates are never activity-cost rates.” Do you agree? Explain.

Expert Solution

"Department indirect cost are never activity - Cost rates"The following statement is not applicable under certain conditions.These are as under :-

1) Department indirect cost are similar to activity cost rates if single activity of department accounts for a sizeable fraction of department's cost.

2) When the allocation base of different activities are same and cost incurred is also significant.

3) when different products use the different activities of department in same proportion.

Activity based costing is used to calculate the amount of overheads and indirect cost related to to particular activity. It benefits the costing process by expanding number of cost pools which is further used to analyse overhead cost and makes indirect cost traceable to certain activities.

Department indirect cost is a cost that is not directly traceable to department.Generally it will be assigned to all department's based on the number of square feets each department occupies.

ekkarill92 answered 2 years ago

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