ExpertACCA · Question 18 · 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).
Under traditional costing (based on labor hours), Quinoa was allocated $10 of overhead per kg. Under ABC, Quinoa is allocated $15 of overhead per kg because it requires complex organic certification processes. Kale's overhead allocation dropped from $10 to $5 per kg.
If GreenHarvest uses cost-plus pricing, what is the likely impact of switching to ABC?
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).
Under traditional costing (based on labor hours), Quinoa was allocated $10 of overhead per kg. Under ABC, Quinoa is allocated $15 of overhead per kg because it requires complex organic certification processes. Kale's overhead allocation dropped from $10 to $5 per kg.
If GreenHarvest uses cost-plus pricing, what is the likely impact of switching to ABC?
Answer options:
The price of both crops will increase.
The price of Quinoa will increase, and the price of Kale will decrease.
The price of Quinoa will decrease, and the price of Kale will increase.
Prices will remain unchanged as total overheads are the same.
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