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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Identify activity bases
From the following list of activity bases for an automobile dealership, select the base that would be most appropriate for each of these costs: (1) preparation costs (cleaning, oil, and gasoline costs) for each car received, (2) salespersons' commission of 6% of the sales price for each car sold, and (3) administrative costs for ordering cars.
a. Dollar amount of cars on hand
b.Dollar amount of cars ordered
c. Dollar amount of cars received
d.Dollar amount of cars sold
e.Number of cars on hand
f. Number of cars ordered
g. Number of cars received
h.Number of cars sold

To determine

Concept Introduction:

Activity Based Costing: In this system of costing we attribute all the overhead cost as per the activity which is related to that cost or overhead. This system of costing also called ABC cost system. Many organizations consider this method of costing as the best method because this helps to attribute the cost to its respective cost centre.

To Indicate:

Basis on which cost should be distributed

Explanation

Preparation cost= Dollar amount of cars on hand, Number of cars on hand because preparation cost is occurred only on those quantity which are processed in the organization.

Sales Persons commission= Dollar amount of cars sold, Number of cars sold because sales ...

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