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CMA Final · Strategic Cost Management · Activity Based Cost Management

Kaveri Textiles has a material-handling pool of Rs 4,80,000 and uses the number of material movements as the driver. Budgeted movements are 2,400, but actual movements for the year are 2,000 with actual cost Rs 4,60,000. Using the budgeted rate, how much cost is left under-absorbed in total across products?

The under-absorbed amount is Rs 60,000. The budgeted rate is Rs 200 per movement, so 2,000 actual movements absorb Rs 4,00,000, while actual cost was Rs 4,60,000. The difference of Rs 60,000 remains unabsorbed.

  1. ARs 20,000
  2. BRs 80,000
  3. CRs 60,000Correct
  4. DRs 40,000

Explanation

Budgeted rate = 4,80,000 / 2,400 = Rs 200 per movement. Absorbed = 2,000 x 200 = Rs 4,00,000. Under-absorbed = actual cost 4,60,000 - 4,00,000 = Rs 60,000. Rs 20,000 is only the spending difference against budget and ignores the volume shortfall.

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