Which of the Following Scenarios Would Most Likely Contain an Externality

question 27

Multiple Choice

Which of the following scenarios would most likely contain an externality?

• A) You cannot afford to buy groceries.
• B) You eat all the vegetables you grow yourself.
• C) You decide to grow your own vegetables in your backyard where no one else can see them.
• D) You decide to grow flowers in your front yard where everyone else can see them.

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Definitions:

Predetermined Overhead Rate

A rate used to apply manufacturing overhead costs to products, calculated before the fiscal period begins based on estimated costs and activity levels.

Machine-Hours

A measure of production activity that quantifies the number of hours machines are run in the manufacturing process.

Job-Order Costing System

An accounting system that accumulates costs by individual jobs or orders, used in manufacturing and service environments where each job is distinct.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products, calculated before the period begins based on an estimate of total overhead costs and an allocation base.