Accounting 9706 · AS & A Level · Activity based costing (ABC)

Activity based costing (ABC) — practice question

Read Source A in the insert. The company is thinking about beginning production of a third product, Z. This would have an impact on both costs and revenues.
(a(i))[2]

Discuss whether or not apportioning the factory rent on a per unit basis is the most appropriate method for apportioning that cost.

(a(ii))[2]

Discuss whether or not setting selling prices by use of a fixed mark-up is the most appropriate way to set them.

(b)[2]

Calculate the yearly total cost of quality inspections if production of Z takes place.

(c(i))[2]

Calculate the annual increase in machine set-ups that would result if production of Z takes place.

(c(ii))[2]

Calculate the yearly rise in factory rent that would occur if production of Z takes place.

(d)[8]

Calculate the selling price for one unit of each product if production of Z takes place.

(e)[7]

Advise the directors whether or not they should reduce the number of quality inspections of product Z. Support your answer.

Worked solution & mark scheme

This 25-mark question has a full step-by-step worked solution and mark scheme. One marking point: Using a per unit basis for apportionment is straightforward

  • Full mark scheme, point by point
  • Step-by-step worked solution
  • Write your answer & get it marked instantly by AI