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

Activity based costing (ABC) — practice question

Look at Source A in the insert. The directors are thinking about ways to cut the costs of Product A so that its selling price can be lowered. They are weighing up two possibilities.
(a)[6]

Calculate the selling price for one unit of Product A.

(b)[5]

Calculate the change in selling price of one unit of Product A that would result if option 1 were carried out.

(c)[5]

Calculate the change in selling price of one unit of Product A that would result if option 2 were carried out.

(d)[7]

Advise the directors on whether option 1 or option 2 should be implemented, or whether neither should be chosen. Justify your answer.

(e)[2]

Suggest two reasons why the directors had chosen to use activity based costing (ABC) rather than traditional costing methods when setting the selling prices.

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