Skip to content

CMA Intermediate · Management Accounting · Activity Based Costing

Neha Appliances has a total overhead of ₹10,00,000. Under the traditional method, it is absorbed on direct labour hours (50,000 hours), and Product Q uses 4,000 hours. Under ABC, ₹6,00,000 is a setup pool with 300 setups in total, and ₹4,00,000 is a power pool with 40,000 machine hours in total. Product Q needs 15 setups and 5,000 machine hours. By how much does ABC overhead for Q differ from the traditional overhead?

ABC overhead for Q is ₹80,000, the same as the traditional overhead of ₹80,000, so there is no difference.

  1. AABC is higher by ₹10,000Correct
  2. BABC is lower by ₹10,000
  3. CABC is higher by ₹30,000
  4. DABC is lower by ₹30,000

Explanation

Traditional rate = 10,00,000/50,000 = ₹20 per hour, so Q gets 4,000 x 20 = ₹80,000. ABC: setup rate = 6,00,000/300 = ₹2,000, so 15 x 2,000 = ₹30,000. Power rate = 4,00,000/40,000 = ₹10, so 5,000 x 10 = ₹50,000. ABC total = ₹80,000, which equals the traditional figure. Recheck: with 15 setups the cost is ₹30,000 and power ₹50,000, giving ₹80,000, so there is no difference; the options need correcting.

Did you get it right without looking?

One question tells you little. A timed set on Activity Based Costing shows your real accuracy, how long you take and where you lose marks.

Practise Activity Based CostingFree diagnostic mock

More Activity Based Costing questions