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ACCA · Question 16 · Specialist cost and management accounting techniques
Section B - Case 1: GreenHarvest
GreenHarvest operates a large-scale organic farm producing two main crops: Quinoa and Kale. The farm is transitioning from traditional absorption costing to Activity-Based Costing (ABC).
One of the major overhead cost pools is 'Soil Testing and Preparation', which totals $45,000 for the year. The cost driver identified for this pool is 'Number of soil tests'.
During the year, Quinoa required 120 soil tests and Kale required 80 soil tests.
Calculate the ABC cost per soil test. (Enter the number only)
Section B - Case 1: GreenHarvest
GreenHarvest operates a large-scale organic farm producing two main crops: Quinoa and Kale. The farm is transitioning from traditional absorption costing to Activity-Based Costing (ABC).
One of the major overhead cost pools is 'Soil Testing and Preparation', which totals $45,000 for the year. The cost driver identified for this pool is 'Number of soil tests'.
During the year, Quinoa required 120 soil tests and Kale required 80 soil tests.
Calculate the ABC cost per soil test. (Enter the number only)
How to approach this question
Divide the total cost pool by the total number of cost drivers.
Full Answer
Total cost driver volume = 120 (Quinoa) + 80 (Kale) = 200 tests.
Cost per driver = Total Cost Pool / Total Driver Volume = $45,000 / 200 = $225 per test.
Common mistakes
Dividing by only the Quinoa tests or Kale tests instead of the total.
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