What is Normal Activity?

Normal activity is the average level of production volume for an extended period of time that incorporates short-term fluctuations. This activity level is used as the basis for a calculation of the standard factory overhead rate, which is then applied to units produced. It can be difficult to arrive at a normal activity level in situations where the level of customer demand varies in an unpredictable manner. Consequently, a business with seasonal sales might not be able to derive a level of normal activity.