Final answer:
The correct computation for the budgeted indirect-cost rate for each cost pool is A) budgeted annual indirect costs divided by budgeted annual quantity of cost allocation base. This method is essential in cost accounting for accurately allocating overhead to products and services.
Step-by-step explanation:
The budgeted indirect-cost rate for each cost pool is computed as A) budgeted annual indirect costs divided by budgeted annual quantity of cost allocation base. This calculation allows businesses to estimate the overhead allocated to each unit of the cost driver. It's a crucial step in cost accounting that enables the accurate pricing of products or allocation of indirect costs to various departments or projects within a company.
Understanding how to calculate average cost (AC) and marginal cost (MC) is fundamental to this process. Average cost is the total cost (TC) divided by the quantity (Q) of output produced, while marginal cost represents the cost of producing one additional unit of output, calculated by the change in total cost (ΔTC) divided by the change in the quantity of output (ΔQ).
In the context of spread overhead, when fixed costs are divided by the quantity of output produced, we obtain the average fixed cost. As the output increases, the average fixed cost per unit decreases. This concept is referred to as 'spreading the overhead' because the fixed cost, or overhead, is allocated across a greater number of units, reducing the per-unit cost.