CMA Final · Strategic Cost Management · Activity Based Cost Management
Ganga Foods Ltd identifies the following for the packing activity: cost pool ₹1,80,000, practical capacity 9,000 packing runs, actual runs 6,000. Cost is assigned on practical capacity. What is the cost of unused capacity?
The cost of unused capacity is ₹60,000. The activity rate on practical capacity is ₹20 per packing run (₹1,80,000 over 9,000 runs). With 3,000 runs unused, 3,000 times ₹20 gives ₹60,000, while ₹1,20,000 is absorbed by actual runs.
- A₹60,000Correct
- B₹1,20,000
- C₹30,000
- D₹90,000
Explanation
Rate on practical capacity = 1,80,000 / 9,000 = ₹20 per run. Unused runs = 9,000 - 6,000 = 3,000. Unused cost = 3,000 x 20 = ₹60,000. Charging ₹1,20,000 would be the cost absorbed by actual runs, not the unused part.
Did you get it right without looking?
One question tells you little. A timed set on Activity Based Cost Management shows your real accuracy, how long you take and where you lose marks.
More Activity Based Cost Management questions
- Sundaram Auto Components Ltd pools its machine set-up costs of ₹6,00,000 and uses the number of set-ups as the cost driver. Total set-ups in…
- Meera Foods Ltd has a distribution activity pool of Rs 9,00,000. The practical capacity is 6,000 deliveries, but only 4,500 deliveries are e…
- Under activity based costing, the cost of 'product design modification', which is incurred for each product line regardless of the number of…
- Under activity based management, a non-value-added activity such as rework of defective output is best handled by:
- Kaveri Textiles has a material-handling pool of Rs 4,80,000 and uses the number of material movements as the driver. Budgeted movements are …
- In an activity based costing system, which of the following is the best example of a batch-level activity?