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CMA Intermediate · Management Accounting · Activity Based Costing

Gupta Textiles has a materials handling activity costing ₹5,40,000 for the year. The activity is used for 9,000 movements in the year, whereas the process, if redesigned, would need only 6,000 movements for the same output. Assuming cost varies in proportion to movements, what is the cost of the non-value-added portion of this activity?

The non-value-added cost is ₹1,80,000. The cost per movement is ₹60 (₹5,40,000 divided by 9,000), and 3,000 movements are unnecessary after redesign, so the waste is 3,000 times ₹60. The ₹3,60,000 figure is the cost of the necessary movements.

  1. A₹1,80,000Correct
  2. B₹2,70,000
  3. C₹3,60,000
  4. D₹60,000

Explanation

Cost per movement = ₹5,40,000 / 9,000 = ₹60. Unnecessary movements = 9,000 - 6,000 = 3,000. Non-value-added cost = 3,000 x ₹60 = ₹1,80,000. The ₹3,60,000 figure is the cost of the necessary 6,000 movements, not the wasted part.

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