Final answer:
The answer is b) The cost allocation methods applicable to the firm. Activity analysis in ABC systems involves studying the organization's activities to accurately allocate overhead costs using appropriate cost drivers, leading to informed strategic decisions.
Step-by-step explanation:
In performing activity analysis during the design of an activity-based costing (ABC) system, the management accountant is primarily involved with studying the linkage between various activities performed within an organization and the costs associated with those activities. The correct answer to the student's question is: b) The cost allocation methods applicable to the firm.
Activity-based costing requires a deep understanding of the processes that drive indirect costs and how to assign those costs to products or services accurately. This encompasses comprehending the nature of all activities, the consumption of resources, and selecting the appropriate cost drivers to allocate overhead in the most realistic way possible.
Activity analysis is useful in breaking down total costs into more granular categories such as fixed cost, variable cost, marginal cost, and average cost, thereby providing valuable insights for the firm. This fundamental understanding of costs assists in making more informed strategic decisions regarding pricing, budgeting, and operational efficiency, which in turn affects the profit maximization strategies of the firm.