Asked by Julie David on Jul 05, 2024
Verified
For an activity base to be useful in cost behavior analysis
A) the activity should always be stated in dollars.
B) there should be a correlation between changes in the level of activity and changes in costs.
C) the activity should always be stated in terms of units.
D) the activity level should be constant over a period of time.
Cost Behavior Analysis
The study of how specific costs respond to changes in the level of business activity.
Activity Base
A measure used in costing that is a significant and quantifiable activity or event, determining the cost incurred by an activity.
Level Of Activity
A measure of the volume of production or work that a business operates at, which can affect costs and efficiency.
- Implement the principle of the activity index and understand its function in analyzing cost behavior.
Verified Answer
CJ
Claire JonesJul 10, 2024
Final Answer :
B
Explanation :
A useful activity base should have a correlation with changes in costs. This means that as the level of activity changes, the cost should also change accordingly. Stating the activity in dollars or units is not necessary as long as there is a clear correlation between the activity base and the cost behavior. A constant activity level is also not necessary, as long as there is a consistent relationship between changes in the activity base and changes in costs.
Learning Objectives
- Implement the principle of the activity index and understand its function in analyzing cost behavior.
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