ExpertEasy2 marksMultiple Choice
ACCA · Question 17 · 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).
Another overhead activity is 'Irrigation System Maintenance'. Which of the following would be the most appropriate cost driver for this activity?
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).
Another overhead activity is 'Irrigation System Maintenance'. Which of the following would be the most appropriate cost driver for this activity?
Answer options:
A.
Number of seeds planted
B.
Number of irrigation hours
C.
Sales revenue of the crops
D.
Number of farm workers
How to approach this question
Identify the factor that causes the cost of irrigation maintenance to increase or decrease.
Full Answer
B.Number of irrigation hours✓ Correct
A cost driver is the factor that causes a change in the cost of an activity. The more hours the irrigation system is running, the more wear and tear it experiences, directly driving the need for maintenance.
Common mistakes
Choosing a volume-based measure like revenue or seeds that doesn't have a causal relationship with the overhead.
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