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ACCA Applied Skills · Performance Management · Activity-based costing

In an activity-based costing system, which of the following is the most appropriate cost driver for the cost pool 'machine set-up costs'?

The number of set-ups performed is the best cost driver for set-up costs, because each set-up consumes resources regardless of how many units or machine hours follow. ABC links cost to the activity that causes it, not to production volume.

  1. ANumber of machine hours worked
  2. BNumber of set-ups performedCorrect
  3. CDirect labour hours worked
  4. DNumber of units produced

Explanation

A cost driver should be the factor that causes the cost of the activity to be incurred. Set-up costs arise each time a machine is set up, so the number of set-ups is the driver. Machine hours and units are volume-based measures and do not reflect what causes set-up cost.

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