Final answer:
To compute activity based overhead rates, identify the necessary activities and associated costs, select cost drivers, and divide the total cost of each activity by the total quantity of its cost driver.
Step-by-step explanation:
To compute the activity based overhead rates for each of the cost pools, follow these steps:
- Identify all the activities required to complete a product or service.
- Determine the total costs associated with each activity, including both direct and indirect costs.
- Choose an appropriate cost driver for each activity, which is a factor that causes or relates to the cost of the activity.
- Calculate the activity rate by dividing the total cost for each activity by the total quantity of the cost driver.
Using the information provided, we would look at this in the context of the firm's cost structure. Determine the total fixed costs and variable costs, and use them to calculate the total cost, average variable cost, average total cost, and marginal cost as shown in the production, costs, and industry structure chapter. The calculations for these can be found in tables such as Table 8.8 and 7.10. These tables and figures will reflect the per-unit costs required to derive the activity-based overhead rates.