Question 1

A company uses Activity-Based Costing (ABC). It has two products: Standard and Custom.
Total estimated overhead: $500,000.
Activity Pool 1 (Setup): $200,000 cost, driven by number of setups (Total 100 setups: 20 Standard, 80 Custom).
Activity Pool 2 (Machining): $300,000 cost, driven by machine hours (Total 10,000 hours: 8,000 Standard, 2,000 Custom).

If the company produces 1,000 units of the Custom product, what is the overhead cost per unit for the Custom product?

Accepted Answer

Step 1: Calculate rate for each pool. Step 2: Allocate costs to Custom product based on its usage. Step 3: Divide total allocated cost by number of units.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Allocating based on units produced instead of activity drivers; forgetting to divide by the number of units at the end.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 2

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