When Consumption or Production of a Product Has a Harmful

question 78

Multiple Choice

When consumption or production of a product has a harmful side effect that is borne by people not directly involved in the market exchange for that product, the side effect is called a(n)

• A)marginal cost.
• B)indirect cost.
• C)additional cost.
• D)external cost.

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Definitions:

Activity Cost Pools

Groups of individual costs driven by the same cost drivers, used in activity-based costing to allocate costs more accurately.

Cost Per Unit

The total cost incurred by a company to produce, store, and sell one unit of a particular product or service.

Predetermined Overhead Rate

A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. It is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period.

Costing System

A method for assessing and allocating costs of production, typically involving direct costs, indirect costs, and overheads.