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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Strategic Cost & Performance Management

Case: Sundaram Appliances Ltd, Chennai, produces mixers. Annual overheads of Rs 6,00,000 are currently absorbed on direct labour hours. A consultant finds that Rs 2,40,000 of this pool is driven by the number of machine set-ups. In the year, 40 set-ups occurred: Product X had 30 set-ups and Product Y had 10. Under activity-based costing, how much of the set-up cost is assigned to Product X?

The set-up cost pool of Rs 2,40,000 divided by 40 set-ups gives Rs 6,000 per set-up. Product X used 30 set-ups, so it is assigned Rs 1,80,000. Rs 60,000 would be Product Y's share.

  1. ARs 60,000
  2. BRs 1,80,000Correct
  3. CRs 4,50,000
  4. DRs 1,20,000

Explanation

Set-up cost per set-up = 2,40,000 / 40 = Rs 6,000. Product X: 30 x 6,000 = Rs 1,80,000. Rs 60,000 is Product Y's share of 10 set-ups, so it is the wrong product.

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