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CMA Final · Strategic Cost Management · Activity Based Cost Management

Kaveri Components Ltd has a set-up cost pool of Rs 3,60,000 for the period, with 120 set-ups driving it. Product A used 30 set-ups and produced 6,000 units; Product B used 90 set-ups and produced 18,000 units. Under ABC, what is the set-up cost per unit of Product B, and how does it compare with a volume-based allocation per unit?

Set-up cost per unit of Product B is Rs 15 under ABC: Rs 3,000 per set-up times 90 set-ups gives Rs 2,70,000, divided by 18,000 units. Volume-based allocation also gives Rs 15 (3,60,000 over 24,000 units), because set-ups and output are proportionate between the products.

  1. ARs 15 per unit under ABC, same as volume-based allocationCorrect
  2. BRs 20 per unit under ABC, Rs 15 under volume-based allocation
  3. CRs 15 per unit under ABC, Rs 20 under volume-based allocation
  4. DRs 30 per unit under ABC, Rs 15 under volume-based allocation

Explanation

Rate per set-up = 3,60,000/120 = Rs 3,000. Product B: 90 x 3,000 = Rs 2,70,000; per unit = 2,70,000/18,000 = Rs 15. Volume basis: 3,60,000/24,000 units = Rs 15 per unit. Both are the same because set-ups and units are in the same 1:3 proportion for A and B.

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