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CA Intermediate · Cost and Management Accounting · Activity Based Costing

Deccan Pumps Ltd. produced 1,500 units of Product P. Direct material and direct labour amount to ₹300 per unit. Overhead pools: machining ₹6,00,000 (driver: machine hours; total 12,000 hours) and setups ₹2,40,000 (driver: number of setups; total 80 setups). Product P used 3,000 machine hours and 25 setups. What is the total ABC cost per unit of P?

The ABC cost per unit of Product P is ₹450. Machining overhead traced to P is ₹1,50,000 and setup overhead is ₹75,000, totalling ₹2,25,000, or ₹150 per unit over 1,500 units. Adding direct cost of ₹300 per unit gives ₹450.

  1. A₹400
  2. B₹440
  3. C₹450Correct
  4. D₹150

Explanation

Machining rate = 6,00,000 / 12,000 = ₹50, so P bears 3,000 × 50 = ₹1,50,000. Setup rate = 2,40,000 / 80 = ₹3,000, so P bears 25 × 3,000 = ₹75,000. Overhead = ₹2,25,000, or ₹150 per unit; adding ₹300 gives ₹450. ₹440 results from wrongly spreading setups on machine hours (₹60,000), and ₹400 omits setup cost.

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