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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