Final answer:
The actual indirect cost rate is calculated by dividing actual total indirect costs by the actual total quantity of the cost-allocation base, aiding firms in allocating costs properly. Additionally, average and marginal costs are key metrics for firms to optimize production and maximize profits.
Step-by-step explanation:
The actual indirect cost rate is calculated by dividing actual total indirect costs by the actual total quantity of the cost-allocation base. This method helps businesses to allocate their indirect costs accurately to the products or services they produce. It is crucial to understand this concept when determining how to best manage and reduce costs within a business.
When considering per-unit costs, firms often analyze average cost and marginal cost. The average cost is computed by taking the total cost and dividing it by the total quantity of output, thereby providing a cost per unit of output. The marginal cost reflects the additional cost incurred in producing one more unit of output and is found by dividing the change in total cost by the change in output. Understanding both average and marginal costs is essential for firms seeking to optimize production levels and maximize profits. If a firm's average cost of production is lower than the market price, the firm stands to make a profit.