A software development firm is transitioning from traditional absorption costing to Activity-Based Costing (ABC). They have identified 'Quality Testing' as a major cost pool.

Which of the following would be the most appropriate cost driver for this cost pool?

Answer options:

Direct labor hours of the programming team.

Number of software licenses sold.

Number of bugs identified and fixed.

Square footage of the testing department office.

How to approach this question

Identify the factor that causes the costs in the 'Quality Testing' pool to increase or decrease.

Full Answer

C.Number of bugs identified and fixed.✓ Correct

In ABC, a cost driver is the factor that causes a change in the cost of an activity. The number of bugs identified and fixed directly correlates with the amount of time and resources spent in Quality Testing, making it the most appropriate driver.

Common mistakes

Selecting direct labor hours, which is a traditional absorption costing base, not an ABC driver.

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Practice the full ACCA MA — Management Accounting Practice Exam 4

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