Question

The CFO of Ward Enterprises is setting up a new activity-based costing system. He has currently finished identifying activities and mapping overhead costs to cost pools associated with each activity. What is the next step for him to take in the process of designing an activity-based costing system?

a. Identify a cost driver associated with each activity.
b. Determine the appropriate denominator volume for each cost driver, to calculate an activity rate.
c. Add the cost pool totals together.
d. Divide each cost pool by the number of units produced

Answer 1

a. Identify a cost driver associated with each activity.

Step-by-step explanation:

While setting up the new activity based costing system he presently completed the identification of the activities and the cost of overhead is associated with each kind of activity

Now the next step in the activity based costing is to have a identification of the cost driver that associated with each kind of activity

Here cost driver means number of machine hours, number of machine setups, etc

Therefore the first option is correct