Skip to content

CA Intermediate · Cost and Management Accounting · Activity Based Costing

Kaveri Appliances makes two products, A and B, and uses ABC for the set-up activity. Monthly set-up cost is Rs 2,40,000. Product A: 20 batches of 100 units each. Product B: 10 batches of 400 units each. Set-up cost is driven by the number of batches. What is the set-up cost per unit of Product A and of Product B, respectively?

Set-up cost per unit is Rs 80 for Product A and Rs 20 for Product B. The rate is Rs 2,40,000 divided by 30 batches, or Rs 8,000 per batch. A bears Rs 1,60,000 over 2,000 units and B bears Rs 80,000 over 4,000 units.

  1. ARs 80 and Rs 20Correct
  2. BRs 40 and Rs 40
  3. CRs 100 and Rs 25
  4. DRs 60 and Rs 30

Explanation

Total batches = 30; rate = 2,40,000 / 30 = Rs 8,000 per batch. A: 20 x 8,000 = 1,60,000 over 2,000 units = Rs 80. B: 10 x 8,000 = 80,000 over 4,000 units = Rs 20. Rs 40 each would result from spreading cost over total units (6,000), a volume-based approach, which ignores the batch driver.

Did you get it right without looking?

One question tells you little. A timed set on Activity Based Costing shows your real accuracy, how long you take and where you lose marks.

Practise Activity Based CostingFree diagnostic mock

More Activity Based Costing questions