27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
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 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

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.



Preparation cost is incurred on each car received for making the automobile ready to operate. Thus, the preparation cost would change with the change in the activity base of number of cars received.


The salespersons get a commission for selling the car sold. As such, the salespersons would receive a 5% commission on the sales price for each car sold...

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