Two orders containing the same number of garments can place very different demands on a factory. One repeats an established design; another needs several production setups and many quality inspections. For ACCA students in Bangladesh, this fictional costing exercise shows why a single overhead rate can conceal the work created by an order.
All BDT figures and production facts here are invented. The case does not claim to represent the costs, margins or practices of an actual Bangladeshi manufacturer. Its purpose is to explain activity-based costing through a calculation that can be checked independently.
Identify activities before selecting a convenient number
The example factory has a setup-cost pool of BDT 600,000 for 30 setups and an inspection-cost pool of BDT 360,000 for 120 inspections. The resulting rates are BDT 20,000 per setup and BDT 3,000 per inspection. These rates follow from the activity totals stated in the question, rather than from the number of shirts alone.
ACCA’s activity-based-costing guidance describes connecting overhead cost pools to the activities that consume them. Selecting a driver requires a reason to believe it reflects the activity’s consumption. An easily counted number is not automatically a meaningful explanation of cost.
Compare two equally sized orders
Order A contains 1,000 units, requires one setup and uses four inspections. Its assigned activity cost is BDT 20,000 plus BDT 12,000, or BDT 32,000. That amounts to BDT 32 per unit for these two activities only.
Order B also contains 1,000 units but requires five setups and twelve inspections. Its assigned activity cost is BDT 100,000 plus BDT 36,000, or BDT 136,000. The corresponding activity cost per unit is BDT 136.
The difference is BDT 104,000 even though output volume is identical. Do not describe BDT 32 or BDT 136 as the full product cost: direct materials, labour and any other relevant cost pools have deliberately been left outside the exercise.
Check the data behind the driver counts
Ask what qualifies as one setup and whether rework setups are recorded consistently. For inspections, establish whether the count measures full inspections, brief checks or batches with very different complexity. If the activities are not comparable, an apparently precise rate may still mislead.
Reconcile the total assigned cost across all orders to the stated cost pools. If the file assigns only 24 of the 30 setups, investigate the missing activity before claiming that the entire setup pool has been allocated. Keep unused-capacity questions visible rather than hiding them through unexplained balancing adjustments.
Do not mistake allocated cost for an immediate cash saving
Reducing Order B from five setups to four would reduce its assigned setup cost by BDT 20,000 under the example’s rate. It does not necessarily reduce next month’s actual payments by the same amount. The resources may remain committed or the freed time may be used elsewhere.
That distinction matters when management moves from costing an order to deciding whether to redesign a process. Explain the operational change, identify which resources could actually be released and consider whether quality or delivery would suffer.
Write the recommendation around complexity
A useful report could propose investigating whether design changes can be grouped to reduce unnecessary setups, while preserving required quality checks. It should not recommend removing inspections simply because they attract a cost allocation. The control’s purpose still matters.
As a self-test, keep both order quantities at 1,000 units but change Order B to three setups and eight inspections. Recalculate its assigned activity cost, compare it with the original and explain which further evidence would be needed before turning that reduction into a promised cash saving.
Source and further study
Explore ASA ACCA courses and check the selected paper’s current coverage and access terms.