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CMA Foundation · Fundamentals of Financial and Cost Accounting · Cost, Cost Centre, Cost Unit and Cost Drivers

Kapoor Industries makes two products. Overheads are Rs 3,00,000 in total: Rs 1,80,000 inspection cost driven by inspections (X: 30, Y: 60) and Rs 1,20,000 machining cost driven by machine hours (X: 1,000, Y: 500). Product X has 2,000 units. Under ABC, what is the overhead cost per unit of X?

The overhead per unit of X is Rs 70. Inspection cost at Rs 2,000 per inspection gives Rs 60,000, and machining at Rs 80 per hour gives Rs 80,000, totalling Rs 1,40,000 for 2,000 units. Dividing the total by units gives Rs 70.

  1. ARs 70Correct
  2. BRs 95
  3. CRs 100
  4. DRs 130

Explanation

Inspection rate = 1,80,000/90 = Rs 2,000 per inspection; X gets 30 x 2,000 = 60,000. Machining rate = 1,20,000/1,500 = Rs 80 per hour; X gets 1,000 x 80 = 80,000. Total for X = 1,40,000; per unit = 1,40,000/2,000 = Rs 70. Check: Y gets 1,20,000 + 40,000 = 1,60,000 and total is 3,00,000.

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