Question

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
3) administrative costs for ordering cars

Number of cars sold
Dollar amount of cars ordered
Number of cars ordered
Number of cars on hand
Number of cars received
Dollar amount of cars sold
Dollar amount of cars received
Dollar amount of cars on hand

Answer 1

1) preparation costs (cleaning, oil, and gasoline costs) for each car received - Number of cars received

After the cars are received, the car dealership needs to determine the preparation costs associated with each car, before being put in display and sold.

2) salespersons' commission of 5% of the sales price for each car sold - Number of cars sold

Each salesperson's obtains a comission, which represents a variable costs for the car dealership, but only after a sale has been made.

3) administrative costs for ordering cars - Number of cars ordered

These are costs are associated with the ordering of the cars. The can range from the wages paid to the workers who order the cars, to tariffs and transporation expenses in case the cars are imported from abroad.