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In activity based costing, what is an activity?
AA department that reports its own overhead total
BA product line that carries a separate price list
CA period cost charged straight to profit or loss
DA unit of work that consumes resources when done
Answer & Solution
Correct answer: D. A unit of work that consumes resources when done
1. An activity is a unit of work that consumes resources when a company performs it.
2. Setups, moves, inspections and cleanups are typical activities in a factory.
3. The thing the activity is performed on is the cost object, such as the product or job.
4. A department is a place where activities happen rather than an activity in its own right.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 4.4 Activity-Based Costing for a Manufacturing Business to Estimate Factory Overhead_
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