CMA Final · Strategic Cost Management · Activity Based Cost Management
A pharma packaging unit in Baddi has a quality-inspection cost pool of Rs 6,00,000 for the year. The cost driver is the number of inspection batches, and 1,500 batches are expected. Product Alpha needs 400 batches and Product Beta needs 250 batches. What inspection cost is assigned to Alpha?
Alpha is assigned Rs 1,60,000. The inspection pool of Rs 6,00,000 divided by 1,500 expected batches gives Rs 400 per batch, and Alpha consumes 400 batches, so its charge is 400 times 400, which equals Rs 1,60,000 under activity based costing.
- ARs 1,60,000Correct
- BRs 1,00,000
- CRs 2,40,000
- DRs 4,00,000
Explanation
The activity rate is 6,00,000 / 1,500 = Rs 400 per batch. Alpha is assigned 400 x 400 = Rs 1,60,000. Rs 1,00,000 is Beta's charge (250 x 400), so it is the wrong product. Rs 2,40,000 uses 600 batches, which is not Alpha's usage.
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