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ACCA Strategic Professional · Advanced Performance Management · Sustainability

Alder Packaging uses an activity-based costing approach to environmental costs. Annual environmental overhead is $600,000, previously absorbed across two products by labour hours: Product P (60,000 hours) and Product Q (40,000 hours). A review shows that Product Q generates 80% of the hazardous waste treatment and permits, which make up $500,000 of the overhead. The remaining $100,000 is truly driven by labour hours. What is the environmental overhead assigned to Product Q under the revised approach?

Product Q should be assigned $440,000. It takes 80% of the $500,000 hazardous waste cost ($400,000) plus 40% of the $100,000 labour-driven cost ($40,000). The old labour-hour method gave only $240,000, understating the environmental burden of Q.

  1. A$240,000
  2. B$440,000Correct
  3. C$400,000
  4. D$360,000

Explanation

Hazardous element: 80% x $500,000 = $400,000 to Q. Labour-hour element: $100,000 x 40% = $40,000 to Q. Total = $440,000. The old method gave Q 40% x $600,000 = $240,000, so Q was under-costed. $400,000 omits the labour-driven share.

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