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ACCA Applied Skills · Performance Management · Activity-based costing

Setup costs at Delta Co total $120,000 for the period, and the cost driver is the number of machine setups. There were 400 setups in total. Product A required 25 setups in the period. What setup cost is assigned to Product A under activity-based costing?

Product A is assigned $7,500 of setup cost. The rate per setup is $120,000 divided by 400 setups, which is $300, and Product A used 25 setups, so 25 multiplied by $300 gives $7,500 under activity-based costing.

  1. A$3,000
  2. B$7,500Correct
  3. C$4,800
  4. D$30,000

Explanation

The cost driver rate is $120,000 / 400 setups = $300 per setup. Product A is assigned 25 x $300 = $7,500. $3,000 is wrong because it wrongly divides the pool by 40 instead of 400 setups, and $4,800 does not use the setup rate.

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