An activity basis is a measurement of the variable cost initiator. Cost driver is another name for an activity basis. The direct labor hours, machine hours, units produced, and units sold are some of the most popular activity bases.
A cost that fluctuates overall directly in relation to variations in the degree of activity is referred to be a variable cost. Units produced, units sold, miles traveled, beds occupied, hours worked, and other metrics may all be used to describe activity. A great illustration of a variable cost is direct material.
A measurable activity is referred to as a "activity basis" for allocating overhead expenses. For Example, using the number of machine hours utilized during a reporting period as the basis for allocating machine expenses to the number of units produced is a fair activity.
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