When an Activity Results in the Imposition of External Costs

question 69

True/False

When an activity results in the imposition of external costs, markets will produce more than the socially optimal level of that activity.

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Definitions:

Plantwide Factory Overhead Rate

The plantwide factory overhead rate is a single rate used to allocate all of a plant's manufacturing overhead costs to its production activities, based on a common basis such as direct labor hours.

Overhead Rates

The rates used to allocate indirect costs to products or services, representing the proportion of overheads each product or service carries.

Allocation-Base Usage

The process of distributing costs based on a predetermined criterion or base, such as machine hours or labor costs.

Activity-Based Costing

Activity-based costing is a method in accounting that assigns costs to products and services based on the resources they consume and the activities undertaken to produce them.