(Appendix 3A)Which Level of Activity,if Used to Set a Predetermined

question 95

Multiple Choice

(Appendix 3A) Which level of activity,if used to set a predetermined overhead rate,may encourage managers to increase selling prices as demand falls?

• A) Budgeted level of activity.
• B) Actual level of activity.
• C) Capacity (maximum)level of activity.
• D) Normal level of activity.

---

Definitions:

Liability Account

An accounting record that represents debts or obligations a company owes to others.

Cash Basis

An accounting method where revenues are recognized when received and expenses when paid, contrasting with accrual basis accounting.

Incurred

Costs or expenses that a company has obtained or become responsible for as a result of its operations.

Accrual-Basis Accounting

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash is received or paid.