In Activity Based Costing, after tracing costs to activities, what is the next step?

In Activity Based Costing, after tracing costs to activities, what is the next step?

• A. Link cost drivers to cost objects
• B. Identify additional activities
• C. Develop activity-based rates
• D. Validate data

Answer: (A)

In Activity Based Costing, costs are first traced to activities (cost pools) that consume resources. The next move is to connect those activity costs to the cost objects (such as products or services) by using the cost drivers that explain how much of each activity each object consumes. This step allocates the traced activity costs across cost objects according to how intensively each object uses each driver, laying the groundwork for calculating activity-based rates and applying them. The other options aren’t the immediate next action: identifying more activities would only be needed if the activity list is incomplete, validating data is a separate data-quality task, and developing activity-based rates generally comes after drivers are linked to cost objects.

In Activity Based Costing, costs are first traced to activities (cost pools) that consume resources. The next move is to connect those activity costs to the cost objects (such as products or services) by using the cost drivers that explain how much of each activity each object consumes. This step allocates the traced activity costs across cost objects according to how intensively each object uses each driver, laying the groundwork for calculating activity-based rates and applying them. The other options aren’t the immediate next action: identifying more activities would only be needed if the activity list is incomplete, validating data is a separate data-quality task, and developing activity-based rates generally comes after drivers are linked to cost objects.