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CA Intermediate · Cost and Management Accounting · Activity Based Costing

Arjun Components has two products, A and B, and overheads of Rs 6,00,000 that were traditionally absorbed on direct labour hours. A uses 20,000 hours and B uses 10,000 hours. Under ABC, Rs 6,00,000 consists of setup cost Rs 2,40,000 (driver: setups; A has 20, B has 60) and other overhead Rs 3,60,000 (driver: direct labour hours). What is the total overhead assigned to B under ABC?

B is assigned Rs 3,00,000 under ABC. Setup cost is charged at Rs 3,000 per setup, giving Rs 1,80,000 for 60 setups, and other overhead at Rs 12 per labour hour, giving Rs 1,20,000 for 10,000 hours. Together these total Rs 3,00,000.

  1. ARs 3,00,000Correct
  2. BRs 2,40,000
  3. CRs 2,10,000
  4. DRs 3,60,000

Explanation

Setup rate = 2,40,000 / 80 = Rs 3,000 per setup, so B gets 60 x 3,000 = Rs 1,80,000. Other overhead rate = 3,60,000 / 30,000 = Rs 12 per hour, so B gets 10,000 x 12 = Rs 1,20,000. Total for B = Rs 3,00,000. Check: A gets 60,000 + 2,40,000 = 3,00,000, and the sum is Rs 6,00,000.

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