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CMA Final · Strategic Cost Management · Activity Based Cost Management

Narmada Tools Ltd makes two products. Total overhead is Rs 8,00,000, of which Rs 2,00,000 is setup cost driven by number of setups and Rs 6,00,000 is machining cost driven by machine hours. Product A: 20 setups, 2,000 machine hours, 1,000 units. Product B: 30 setups, 4,000 machine hours, 1,000 units. Total setups 50, total machine hours 6,000. Overhead per unit of B under ABC is:

Overhead per unit of B is Rs 520. Setup cost charged is Rs 1,20,000 at Rs 4,000 per setup for 30 setups, and machining is Rs 4,00,000 at Rs 100 per hour for 4,000 hours. The total Rs 5,20,000 divided by 1,000 units gives Rs 520.

  1. ARs 440Correct
  2. BRs 400
  3. CRs 360
  4. DRs 520

Explanation

Setup rate = 2,00,000/50 = Rs 4,000, so B gets 1,20,000. Machining rate = 6,00,000/6,000 = Rs 100, so B gets 4,00,000. Total 5,20,000 / 1,000 units = Rs 520. Check A: 80,000 + 2,00,000 = 2,80,000; sum 8,00,000. So B is Rs 520, not Rs 440.

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