Choice of Activity as the Overhead Cost Driver in a Service

question 92

Essay

Choice of activity as the overhead cost driver in a service organisation's flexible budget.
Define overhead application and describe why direct labour hours would not be considered an accurate cost driver for allocating overhead costs for a hotel. Provide two examples of cost drivers that could be used in the hotel industry and justify your answer.

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Definitions:

Sample Means

The average values derived from samples, considered as estimations of the population mean, crucial in the field of inferential statistics.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values; a low standard deviation indicates that the values are close to the mean.

Population

The complete set of items or individuals that are the objects of a statistical study.

Simple Random Sample

A subset of a larger population in which every member has an equal chance of being selected, ensuring the sample’s representativeness.