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CMA Final · Strategic Cost Management · Activity Based Cost Management

Meera Foods Ltd has a distribution activity pool of Rs 9,00,000. The practical capacity is 6,000 deliveries, but only 4,500 deliveries are expected this year. Under ABC with the cost driver rate based on practical capacity, what is the cost of unused capacity for the year?

The cost of unused capacity is Rs 2,25,000. The rate based on practical capacity is Rs 150 per delivery, and 1,500 deliveries of capacity remain unused, so unused cost is 1,500 multiplied by Rs 150.

  1. ARs 1,50,000
  2. BRs 2,25,000Correct
  3. CRs 3,00,000
  4. DRs 4,50,000

Explanation

The rate on practical capacity = 9,00,000 / 6,000 = Rs 150 per delivery. Unused capacity = 6,000 - 4,500 = 1,500 deliveries. Cost of unused capacity = 1,500 x 150 = Rs 2,25,000. Rs 1,50,000 wrongly uses a rate of Rs 100.

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