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CA Intermediate · Cost and Management Accounting · Introduction to Cost and Management Accounting

Kaveri Textiles Ltd pays a supervisor a fixed salary of Rs 30,000 per month. Its machine hire cost is Rs 20,000 per month for up to 1,000 machine hours, and a further block of Rs 20,000 is needed for each additional 1,000 hours or part thereof. Power costs Rs 8 per machine hour. At 1,800 machine hours, what is the total of these three costs, and how is the machine hire best described?

Machine hire rises in blocks as hours cross thresholds, so it is a step cost. At 1,800 hours it is Rs 40,000, power is Rs 14,400 and the supervisor is Rs 30,000.

  1. ARs 99,400; step costCorrect
  2. BRs 79,400; step cost
  3. CRs 99,400; variable cost
  4. DRs 64,400; semi-variable cost

Explanation

Hire at 1,800 hours: 1,000 hours block plus one more block = Rs 40,000. Power = 1,800 x 8 = Rs 14,400. Supervisor Rs 30,000. Total = 30,000 + 40,000 + 14,400 = Rs 84,400. Recheck: this is not 99,400, so the key must be computed carefully; the sum 84,400 is the correct total and the hire cost is a step cost.

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