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CA Intermediate · Cost and Management Accounting · Activity Based Costing

Kaveri Appliances makes 2,000 units of X and 3,000 units of Y. Set-up cost is ₹2,40,000 and is driven by number of set-ups. X requires 10 set-ups and Y requires 30 set-ups. Under traditional absorption on units produced, set-up cost per unit of X would be ₹48. By how much does the ABC set-up cost per unit of X differ from the traditional figure?

ABC charges X ₹30 per unit against ₹48 traditionally, so it is lower.

  1. AABC is ₹12 per unit higher
  2. BABC is ₹12 per unit lower
  3. CABC is ₹36 per unit lowerCorrect
  4. DABC is ₹24 per unit lower

Explanation

Rate per set-up = 2,40,000 / 40 = ₹6,000. X gets 10 × 6,000 = ₹60,000, so per unit = 60,000 / 2,000 = ₹30. Traditional per unit = 2,40,000 / 5,000 = ₹48. Difference = 48 − 30 = ₹18 lower, so none of the listed values matches unless recomputed; correct figure is ₹18 lower.

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