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CMA Intermediate · Management Accounting · Activity Based Costing

Meenakshi Labs has a quality inspection pool of ₹3,60,000. The practical capacity is 1,200 inspections, but only 900 were performed in the year. If ABC rates are set on practical capacity, what amount of inspection cost is the cost of unused capacity and not assigned to products?

The unused-capacity cost is ₹90,000. The inspection rate at practical capacity is ₹300 (₹3,60,000 ÷ 1,200), so the 900 inspections performed absorb ₹2,70,000. The remaining 300 inspections of idle capacity at ₹300 each amount to ₹90,000, which is not charged to products.

  1. A₹90,000Correct
  2. B₹1,20,000
  3. C₹2,70,000
  4. D₹60,000

Explanation

The rate on practical capacity is ₹3,60,000 ÷ 1,200 = ₹300 per inspection. Products absorb 900 × 300 = ₹2,70,000. The balance, 300 unused inspections × ₹300 = ₹90,000, is the cost of unused capacity. ₹2,70,000 is the amount assigned to products, not the unused part.

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