CA Intermediate · Cost and Management Accounting · Activity Based Costing
Kaveri Appliances makes two products. Setup cost pool is Rs 2,40,000, driven by the number of setups. Product P has 20 batches of 100 units each with one setup per batch; product Q has 10 batches of 400 units each with one setup per batch. Under ABC, what is the setup cost per unit of P and Q respectively?
Setup cost is Rs 80 per unit for P and Rs 20 per unit for Q. Total setups are 30, so each costs Rs 8,000. P gets Rs 1,60,000 over 2,000 units, and Q gets Rs 80,000 over 4,000 units.
- ARs 40 for P and Rs 20 for Q
- BRs 80 for P and Rs 20 for QCorrect
- CRs 80 for P and Rs 40 for Q
- DRs 60 for P and Rs 30 for Q
Explanation
Total setups = 20 + 10 = 30. Rate = 2,40,000/30 = Rs 8,000 per setup. P: 20 x 8,000 = 1,60,000 over 2,000 units = Rs 80. Q: 10 x 8,000 = 80,000 over 4,000 units = Rs 20. Option with Rs 40 and Rs 20 wrongly spreads cost by units equally partly.
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