If the Price Index Is P₁ in One Year and P₂

question 1

Multiple Choice

If the price index is P₁ in one year and P₂ in the next year,the inflation rate from one year to the next is calculated as

• A)(P₂ - P₁)× 100.
• B)(P_2/P₁)× 100.
• C)(P_1/P₂)× 100.
• D)[(P₂ - P₁)/P₁] × 100.
• E)[(P₁ - P₂)/P₂] × 100.

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Definitions:

Estimated Overhead Cost

An approximation of the indirect costs associated with production, used for budgeting and pricing purposes.

Activity Cost Pools

Activity Cost Pools are aggregations of all the costs associated with particular activities used in activity-based costing to allocate overhead costs more accurately.

Predetermined Overhead Rates

Rates used to apply manufacturing overhead to products or job orders, calculated in advance based on estimated overhead costs and activity levels.

Activity-Based Costing

A method of costing that identifies activities in an organization and assigns the cost of each activity to products or services according to the actual consumption of each.