AC505 Unit 2 Activity-Based Costing Problem Example

Course	AC505 Advanced Managerial/Cost Accounting
Unit	Unit 2
Paper type	Activity-based costing problem
Length	About 560 words, 5 pages double-spaced
Format	APA 7 student paper
School	Purdue University Global
Program	MS in Accounting
Updated	October 2026

Free sample paper for AC505 Unit 2

From $14.93 a Case to $2.09: A Unit 2 Activity-Based Costing Problem on an Allergen-Free Line

[Student Name]

Purdue University Global

AC505: Advanced Managerial/Cost Accounting

Unit 2 Activity-Based Costing Problem

[Instructor Name]

[Date]

Harrow Creek Nut Company and every figure are composite; the textbooks and article cited are real.

What this part is doingStating both margins and the cause of the change in the lead shows the problem's conclusion first.

Schedule 1: The Traditional Rate

The consumer division spreads $3,690,000 of overhead over 23,000 direct labor hours, $160.43 an hour, the single plantwide rate many textbooks begin with (Hilton & Platt, 2020). A case of peanut butter takes 0.040 labor hours, almond 0.043 and sunflower seed 0.060, so overhead per case is $6.42, $6.95 and $9.63. The division sells 361,000 cases of peanut butter, 120,000 of almond and 56,000 of sunflower seed.

Sunflower seed butter sells for $54.00 a case, with direct materials and labor of $29.44, leaving $24.56 before overhead. Less $9.63, the margin is $14.93 a case, the best in the division.

The Activity Pools and Drivers

Overhead was traced to five pools, each with the driver that best explains its cost (Cooper & Kaplan, 1988):

1. Filling line operation, $1,558,000, driven by line hours (13,536): $115.10 an hour.

2. Allergen washdowns, $560,000, driven by washdown hours (700): $800.00 an hour.

3. Lab release testing, $432,000, driven by tests (1,600): $270.00 a test.

4. Production run setup, $612,000, driven by runs (340): $1,800.00 a run.

5. SKU maintenance, $528,000, driven by active SKUs (33): $16,000.00 a SKU.

Schedule 2: Overhead by Activity

Sunflower seed butter uses 1,511 line hours, 620 of the 700 washdown hours, 520 lab tests, 160 runs and 10 SKUs. Its overhead is $173,916 for line time, $496,000 for washdowns, $140,400 for tests, $288,000 for runs and $160,000 for SKUs, a total of $1,258,316, or $22.47 a case. Its margin falls to $2.09 a case.

Peanut butter, with long runs and almost no washdowns, falls to $4.61 of overhead a case from $6.42, and its margin rises from $4.68 to $6.49. Almond moves less, from $6.95 to $6.38 of overhead.

Sunflower seed butter looked like the division's best product because labor hours hid the fact that it causes almost every washdown and runs in small lots, and activity-based costing simply sends those costs back to the product that creates them.

What this part is doingThe highlighted sentence explains why the margins shift, the insight graders look for in an ABC problem.

Checking the Totals

The three products' activity-based overhead adds back to the division's $3,690,000: $1,665,782 for peanut butter, $765,901 for almond and $1,258,316 for sunflower seed, allowing for rounding in the rates. Activity-based costing redistributes overhead; it does not create or remove any. That check is worth doing on every ABC schedule, because a pool total that fails to reconcile usually means a driver count was misread.

What the Numbers Do and Do Not Say

The finding does not mean the line should be dropped. Much of the washdown and setup cost is driven by how the product is scheduled: 160 runs for 56,000 cases is about 350 cases a run, against 3,300 for peanut butter. Doubling the run length would halve the setups and cut washdowns sharply, which could raise the margin above $8 a case. The allergen-free range may also win shelf space for the whole brand. Activity-based costing tells managers where the cost comes from, so the next step is to manage the activity, not only to reprice the product (Datar & Rajan, 2021).

What this part is doingEnding on managing the activity shows the analysis leads to a decision, not just a new number.

References

Cooper, R., & Kaplan, R. S. (1988). Measure costs right: Make the right decisions. Harvard Business Review, 66(5), 96-103.

Datar, S. M., & Rajan, M. V. (2021). Horngren's cost accounting: A managerial emphasis (17th ed.). Pearson.

Hilton, R. W., & Platt, D. E. (2020). Managerial accounting: Creating value in a dynamic business environment (12th ed.). McGraw Hill.

What the AC505 Unit 2 assignment asks for

Unit 2 of AC505 asks you to compare traditional and activity-based overhead allocation for a set of products. First compute overhead per unit under the traditional single rate and the resulting margins. Then define activity pools, each with the driver that best explains its cost, and compute a rate for each. Apply the rates to each product's driver usage and compute overhead per unit and margins again. Reconcile the activity-based totals to the original overhead. Explain why margins shifted, naming the activities that caused the change. Then discuss what the results imply for decisions, distinguishing between repricing, redesigning the activity and dropping the product, and note any strategic reason to keep a product that looks weak. Cite the foundational article on activity-based costing and recognized cost texts in APA 7.

How this AC505 Unit 2 example is built

The sample's first schedule spreads $3,690,000 over 23,000 labor hours, giving $6.42, $6.95 and $9.63 of overhead per case and a sunflower margin of $14.93 on a $54.00 price. The driver section lists five pools with their totals and rates, from $115.10 per line hour to $16,000 per SKU. The second schedule charges sunflower seed with 620 of 700 washdown hours, 520 tests and 160 runs, totaling $1,258,316, or $22.47 a case and a $2.09 margin. The highlighted sentence explains why labor hours hid the cost. A reconciliation confirms the three products total $3,690,000. The closing section shows that longer runs could lift the margin above $8 and that the range may win shelf space.

Reading the AC505 Unit 2 grading rubric

AC505 activity-based costing problems earn points for correct computation and for interpretation that leads to decisions. Graders check the traditional rate, each pool's rate and each product's assigned overhead, and expect the totals to reconcile to the original overhead. Drivers should be justified by what causes each pool's cost. The rubric rewards explaining which activities drove the margin shift and recognizing that activity costs can be managed, for example by lengthening runs, rather than simply recommending a price increase or dropping the product. Strategic considerations, such as a range's effect on shelf space, earn further credit. Answers that stop at new unit costs, or that choose drivers with no causal link, lose points. APA 7 references support the method.

AC505 Unit 2 help: mistakes that cost points

Weak Unit 2 answers compute activity rates correctly and then stop, never explaining why the margins changed. Others pick drivers for convenience, such as allocating washdowns by cases rather than by washdown hours. Totals are never reconciled, so arithmetic errors go unnoticed. The conclusion jumps to dropping the product that now looks unprofitable, ignoring that its costs come from scheduling choices that could change. Strategic value is overlooked. If your section's case has different products or pools, such as a hospital's service lines or a distributor's customers, a writer can build both schedules and the interpretation from your figures.

Get an AC505 Unit 2 example written to your instructions

Activity costing depends on local facts: the overhead pools in your Unit 2 case, what each product consumes, and the base currently used to spread cost. With those and the rubric, a finished problem defending every driver and reconciling both allocations is ready in 24-48h, with the first sample unbilled. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.

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AC505 Unit 2 questions, answered

When is a duration driver better than a transaction driver?

When the same activity takes very different amounts of time across products. Counting setups or cleanings is cheaper to record, but it charges a long event and a short one identically. If durations vary widely, as allergen washdowns do against flavor changes, a duration driver costs products more accurately, and the answer should argue that the extra recording is worth it.

Must every overhead pool have its own driver?

Only pools whose costs arise from different activities. Combining two pools with the same driver loses nothing and keeps the system simpler. Graduate prompts often reward restraint here: five well-defended pools usually outscore twelve thinly justified ones, since each added pool raises measurement cost and the answer must show the extra accuracy is worth paying for.

Should the answer recommend a price change?

Usually it should raise the question rather than settle it. Activity costing shows what a product consumes; a pricing decision also depends on competitors, retailer terms and which costs would really change. A sentence noting that the allergen-free line now looks thin at current prices, and what a relevant cost analysis would need to check, reads as judgment rather than overreach.

Where can I find a free AC505 Unit 2 sample paper?

This page holds a full AC505 Unit 2 activity-based costing problem for Harrow Creek Nut Company comparing a labor-hour rate with five activity pools, with margins, a reconciliation and APA 7 references.

Should the sunflower seed line be dropped?

Not on this evidence. Most of its added overhead comes from short runs and washdowns that scheduling can reduce, and the allergen-free range may help the whole brand keep shelf space with grocery chains.