Question

The denominator activity is the ______. Multiple choice question. estimated total overhead cost actual total overhead cost actual total of the allocation base estimated total of the allocation base

Answer 1

The denominator activity is defined as the estimated total overhead cost.

This is important during budget preparation so as to have an idea of the

amount needed to run a project.

The denominator activity is also referred to as denominator level and in

situations where there is an increasing or decreasing inventory in an

organization, a lower or higher denominator level is needed respectively.

This helps to ensure that there is an increase in absorption costing income

when at lower denomination level and decrease in absorption costing

income at higher denomination level.

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