# Identify activity bases From the following list of activity bases for an automobile dealership, select the ba.se 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 5% of the sales price for each car sold, and (3) administrative costs for ordering cars. A. Number of cars sold B. Dollar amount of cars ordered C. Number of cars ordered D. Number of cars on hand E. Number of cars received F. Dollar amount of cars sold G. Dollar amount of cars received H. Dollar amount of cars on hand

### Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207

Chapter
Section

### Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207
Chapter 19, Problem 19.4EX
Textbook Problem
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## Identify activity basesFrom the following list of activity bases for an automobile dealership, select the ba.se 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 5% of the sales price for each car sold, and (3) administrative costs for ordering cars.A. Number of cars soldB. Dollar amount of cars orderedC. Number of cars orderedD. Number of cars on handE. Number of cars receivedF. Dollar amount of cars soldG. Dollar amount of cars receivedH. Dollar amount of cars on hand

To determine

Cost Behavior: It refers to the method in which a cost changes with respect to the changes in its related activities. This method helps the management in estimating costs for decision making and predict future profits.

Activity Base: The activities that cause the cost to vary accordingly are known as activity base.

To select: the activity base that would be most appropriate for each of the given costs.

### Explanation of Solution

Select the activity base that would be most appropriate for each of the given costs.

 Sl.No. Cost Sl. No. Activity Base 1. Preparation costs (cleaning, oil, and gasoline costs) for each car received E. Number of cars received 2. Salespersonsâ€™ commissions of 5% of the sales price for each car sold F. Dollar amount of car sold 3. Administrative costs for ordering cars G. Number of cars ordered

Table (1)

1.

Preparation cost is incurred on each car received for making the automobile ready to operate...

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