State the formula for computing overhead rates using an activity-based costing system: - An activity-based costing system allocates manufacturing overhead to one or many activity cost pools, then assigns the activity cost pools to the products manufactured by means of cost drivers. - An activity is a task, operation, or procedure that creates costs that are incurred. - A cost pool is a collection of costs that all related to the same activity. - Costs are pooled together in order to determine an activity overhead rate for all the costs incurred by the same activity. - A cost driver is the usage of resources that is driven by the activity. An example of this would be the assembling of a product.
Work Step by Step
Activity based overhead rate is calculated by using following formula: Activity-Based Overhead rate = Estimated Overhead per Activity/Expected use of Cost drivers per Activity