ExpertEasy2 marksShort Answer
ACCA · Question 3 · Activity Based Costing
Section A
ArtisanWood crafts bespoke furniture. The company is adopting Activity-Based Costing (ABC). The total quality inspection costs for the year are $120,000. The cost driver is the number of inspections.
During the year, ArtisanWood expects to conduct 4,000 inspections in total. Product 'OakTable' requires 150 inspections.
Calculate the total quality inspection cost allocated to the 'OakTable' product line for the year. (Enter the number only, without the $ sign).
Section A
ArtisanWood crafts bespoke furniture. The company is adopting Activity-Based Costing (ABC). The total quality inspection costs for the year are $120,000. The cost driver is the number of inspections.
During the year, ArtisanWood expects to conduct 4,000 inspections in total. Product 'OakTable' requires 150 inspections.
Calculate the total quality inspection cost allocated to the 'OakTable' product line for the year. (Enter the number only, without the $ sign).
How to approach this question
Step 1: Calculate the Cost per Driver (Total Cost / Total Driver Volume). Step 2: Multiply the Cost per Driver by the number of drivers used by the specific product.
Full Answer
Cost per inspection = Total Inspection Costs / Total Inspections = $120,000 / 4,000 = $30 per inspection.
Cost allocated to OakTable = 150 inspections × $30 = $4,500.
Common mistakes
Dividing $120,000 by 150 instead of the total pool of 4,000.
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