How is Our Next Body Determined?

There are two factors that determine which body we shall obtain in the next birth. The first is our karma - the reactions to our good and bad activities that were performed in this life and in previous lives. The second factor is our desire to enjoy particular sense objects.
The example of a man purchasing a car is appropriate in this regard. He has a desire to enjoy in a particular way with his car, and he also has a certain amount of money to spend. He takes both factors into account to determine which model to purchase.

Krishna tells us that the state of consciousness that we have upon leaving the present body determines the type of body that we will have in the next birth.1 This is our "final exam" which we should study for throughout this life by cultivating remembrance of Krishna. One may think that at the time of death he will suddenly make up for the rest of his life by “getting religion." However, things don't work that way. The thoughts, desires and attachments that one has cultivated throughout his life will be reflected in those final moments. There is no way to cheat on this "exam." As far as activities are concerned, we should only perform activities that carry no karmic weight (technically called "akarmic" activities), so that we will not have to return to this world either to receive bad or good results. Then we will return to the spiritual abode of the Lord.
1. Bhagavad-gita 8.6