A Level Accounting: Activity based costing (Cambridge 9706) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions follow section 4.1 Activity based costing (ABC), A Level content, of the Cambridge International AS & A Level Accounting 9706 syllabus for 2026, 2027 and 2028. All businesses and figures are invented and all amounts are in dollars. Start with the study guide or revision notes. Also see the course hub, checklist and diagnostics.

Questions

1. Harrowmere Cycles uses ABC.

(a) State what is meant by a cost driver. [2] (b) Name a cost driver for (i) the stores team checking deliveries and (ii) changing welding jigs between frame models. [2]

2. Stannick Candles makes 40,000 pillar candles (P) and 15,000 scented jars (J). Overheads of 93,000 are in three pools: batch preparation 30,000 (batches: P 20, J 80); fragrance blending 18,000 (blends: P none, J 45); order packing 45,000 (orders: P 200, J 550). Direct labour is 0.04 hours per P and 0.10 hours per J.

(a) Calculate the cost driver rate for each pool. [3] (b) Calculate the overhead per unit of each product under ABC. [3] (c) Calculate the overhead per unit under traditional absorption on direct labour hours, and state which product traditional costing over-costs, with a reason. [3]

3. A clerk at Harrowmere Cycles would share the pool “design changes for custom orders” by units produced.

(a) Explain why this driver is inappropriate. [2] (b) Suggest a better driver. [1] (c) State one practical difficulty in using your driver. [1]

4. Merrowdown Foods makes 20,000 family pies (F) and 20,000 single-portion meals (M). Direct costs are 3.40 per F and 2.10 per M. Overheads: cooking batches 54,000 (F 60, M 120); line changeovers 27,000 (F 20, M 70); pallets despatched 40,000 (F 150, M 250). Price is total cost plus a 20% mark-up on cost.

(a) Calculate the cost driver rate for each pool. [3] (b) Calculate the overhead per unit of F and of M. [2] (c) Calculate the total cost and selling price per unit of F and of M. [3]

5. Tilbrook Joinery made 1,200 Door A and 600 Door B and sold 1,000 and 450. Full cost per door, traditional then ABC: A 48.00 and 52.50; B 80.00 and 71.00. Closing inventory is valued at full cost.

(a) Calculate the closing inventory value under each method. [3] (b) State the effect on profit of using ABC instead of traditional costing, with an explanation. [3]

6. A small family bakery is considering ABC. Explain one use and two limitations of ABC for it. [6]

7. Pellworth Eyecare has overheads of 120,000 and carries out 5,000 routine examinations (R) and 2,000 lens fittings (C), taking 0.5 and 0.75 clinician hours each. Pools: diagnostic scans 60,000 (R 1,500, C 4,500); bookings 30,000 (R 5,000, C 2,500); lens ordering 30,000 (R 250, C 1,250).

(a) Calculate the cost driver rate for each pool. [3] (b) Calculate the overhead per appointment for R and C under ABC. [2] (c) Calculate the overhead per appointment on clinician hours and comment on the difference. [2]

8. Kenrith Pumps has overheads of 270,000 and makes 12,000 of X and 4,000 of Y. X uses 0.5 labour hours and 0.25 machine hours, costs 20 directly and sells at 35. Y uses 1.5 of each, costs 40 directly and sells at 90.

(a) Calculate overhead per unit of each product on (i) labour hours and (ii) machine hours. [3] (b) Calculate profit per unit of each product on each basis. [2] (c) Comment on total profit if all output is sold. [1]

9. Lanthorne Textiles weaves 8,000 metres of Heritage tweed (H) and 40,000 of plain wool (W). Overheads of 124,000 are absorbed on machine hours (0.5 per metre of H, 0.1 of W). Direct costs per metre are H 19.00 and W 11.00. Prices are H 27.00 and W 14.00. Pools: loom set-ups 60,000 (H 60, W 40); dye batches 40,000 (H 40, W 60); sample requests 24,000 (H 80, W 20). H is the flagship line in prestigious showrooms; directors are considering stopping it.

(a) Calculate the profit or loss per metre of H using machine hours. [3] (b) Calculate the profit or loss per metre of H using ABC. [3] (c) Recommend whether H should be stopped, supporting your answer with a balance of reasons. [4]

10. Harrowmere Cycles has a set-up pool of 45,000 and 150 set-ups: Trail bike 90, Commuter 60. It makes 6,000 Trail bikes. Larger batches cut set-ups to 60 (Trail) and 40 (Commuter), and the pool falls to 30,000 as technician hours are cut.

(a) Calculate the set-up cost per Trail bike now. [2] (b) Calculate the set-up cost per Trail bike after the change. [2] (c) State one reason the saving might not occur. [1]

Answers

1. (a) The factor that causes the cost of an activity to be incurred [1], and which measures how much of the activity each product uses [1]. (b) (i) Number of deliveries received [1]. (ii) Number of jig changes, or set-ups [1]. Examiner insight: A definition gains credit when it links the driver to the cause of cost; naming the activity, such as “welding”, does not.

2. (a) Batches 30,000 / 100 = 300 [1]. Blends 18,000 / 45 = 400 [1]. Orders 45,000 / 750 = 60 [1]. (b) P: 6,000 + 0 + 12,000 = 18,000 [1]. J: 24,000 + 18,000 + 33,000 = 75,000 [1]. Per unit: P 0.45, J 5.00 [1]. (c) Hours 3,100; rate 93,000 / 3,100 = 30 [1]. P 0.04 × 30 = 1.20; J 0.10 × 30 = 3.00 [1]. Traditional costing over-costs P (1.20 against 0.45): P uses few batches and orders but absorbs overhead through labour hours [1]. Examiner insight: Show the driver quantity you divide by; a bare rate is hard to credit if it is wrong.

3. (a) Custom orders cause design changes, not the number of units made [1]. Units would charge standard, high-volume products for cost they do not cause [1]. (b) Number of design change requests [1]. (c) Requests may not be recorded by product, so collecting the data takes time and cost [1]. Examiner insight: Explain what causes the cost; “it is less accurate” alone gives no reason.

4. (a) Batches 54,000 / 180 = 300 [1]. Changeovers 27,000 / 90 = 300 [1]. Pallets 40,000 / 400 = 100 [1]. (b) F: 18,000 + 6,000 + 15,000 = 39,000; / 20,000 = 1.95 [1]. M: 36,000 + 21,000 + 25,000 = 82,000; / 20,000 = 4.10 [1]. (c) F: 3.40 + 1.95 = 5.35 [1]. M: 2.10 + 4.10 = 6.20 [1]. Prices: F 5.35 × 1.20 = 6.42; M 6.20 × 1.20 = 7.44 [1]. Examiner insight: Apply the mark-up to total cost, not overhead alone, and check that 39,000 + 82,000 equals the pools’ 121,000.

5. (a) Closing units A 200, B 150 [1]. Traditional: 200 × 48.00 + 150 × 80.00 = 9,600 + 12,000 = 21,600 [1]. ABC: 200 × 52.50 + 150 × 71.00 = 10,500 + 10,650 = 21,150 [1]. (b) ABC inventory is 450 lower [1], so less overhead is carried forward and 450 more cost is charged to the period [1]. Profit is 450 lower under ABC; total overhead is the same, only its allocation differs [1]. Examiner insight: State the direction of the profit change and link it to inventory value; a bare figure leaves the question half answered.

6. Use: more accurate product costs, for example for wedding cakes needing many decorating hours [1], supporting pricing or spotting unprofitable lines [1]. Limitation 1: identifying pools and recording driver data is costly and slow, which is disproportionate for a small business [2]. Limitation 2: choosing pools and drivers is subjective, and overheads such as rent have no clear driver, so are still shared arbitrarily [2]. Examiner insight: Develop each limitation and link it to the bakery; single-word lists tend to earn little.

7. (a) Scans 60,000 / 6,000 = 10 [1]. Bookings 30,000 / 7,500 = 4 [1]. Ordering 30,000 / 1,500 = 20 [1]. (b) R: 15,000 + 20,000 + 5,000 = 40,000; / 5,000 = 8.00 [1]. C: 45,000 + 10,000 + 25,000 = 80,000; / 2,000 = 40.00 [1]. (c) Hours 4,000; rate 120,000 / 4,000 = 30. R 15.00, C 22.50 [1]. Traditional costing under-costs C (22.50 against 40.00), so fitting fees set from it would be too low [1]. Examiner insight: Name the product under-costed and say what that means for pricing.

8. (a) (i) Labour hours 12,000; rate 22.50; X 11.25, Y 33.75 [1]. (ii) Machine hours 9,000; rate 30.00; X 7.50, Y 45.00 [1]. The same 270,000 is shared [1]. (b) Labour hours: X 3.75, Y 16.25 [1]. Machine hours: X 7.50, Y 5.00 [1]. (c) Total profit is 110,000 under both bases when all output is sold [1]; only the split between products changes. Examiner insight: Note that the total is unchanged while the ranking of products changes.

9. (a) Machine hours 8,000; rate 124,000 / 8,000 = 15.50 [1]. H overhead 0.5 × 15.50 = 7.75, so cost 19.00 + 7.75 = 26.75 [1]. Profit 27.00 − 26.75 = 0.25 per metre [1]. (b) Rates 600, 400, 240 [1]. H overhead 36,000 + 16,000 + 19,200 = 71,200; per metre 8.90 [1]. Cost 27.90, so a loss of 0.90 per metre [1]. (c) ABC shows a loss of 7,200 (0.90 × 8,000) against a profit of 2,000 on machine hours [1]. H needs a price of at least 27.90 or fewer set-ups, dye batches and samples [1]. Non-financial: H is the flagship line and supports showroom relationships [1]. Recommend keeping H while repricing and cutting set-ups: the loss is small, and stopping H may not remove its 71,200 overhead, which would fall on W [1]. Examiner insight: A recommendation is stronger when it uses ABC figures and non-financial points, then commits to one course.

10. (a) Rate 45,000 / 150 = 300 [1]. Trail: 90 × 300 / 6,000 = 4.50 [1]. (b) New rate 30,000 / 100 = 300 [1]. Trail: 60 × 300 / 6,000 = 3.00 [1]. (c) The cost falls only if technician hours are actually removed; a fixed cost will not shrink [1]. Examiner insight: Noting that a saving depends on removing resources applies a limitation to the case.

Where marks are usually lost

• Dividing a pool by units made, not by total driver quantity.
• Using one driver for every pool, which repeats traditional costing.
• Stopping at overhead per unit without adding direct costs.
• Applying a mark-up to overhead only, rather than total cost.
• Giving a recommendation with no reasons against it, or no non-financial factors.
• Saying ABC changes total profit when all output is sold; it changes the split.

Frequently asked questions

Are these Cambridge 9706 ABC questions from past papers? No. They are ten original questions with worked answers on section 4.1 Activity based costing of Cambridge 9706, written for revision. Use them alongside the official past papers.

How should I show a cost driver rate? Show the driver quantity you divide by, as well as the rate. A bare rate is hard to credit if it is wrong.

Should a mark-up be applied to overhead or total cost? Apply the mark-up to total cost per unit, including direct costs. Applying it to overhead only is a common way to lose marks.

How do I answer an ABC question about a small business? Develop each use or limitation and link it to the business in the question. Single-word lists tend to earn little.

Next steps

• Review the revision notes and study guide.
• Visit the course hub and tick off the checklist.
• Find weak topics with the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge International AS & A Level Accounting 9706 syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment, section 4.1 Activity based costing (ABC).