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CMA Intermediate · Management Accounting · Activity Based Costing

Product P: 5,000 units, direct material ₹120 per unit, direct labour ₹60 per unit. Ordering cost pool is ₹1,50,000 for 300 purchase orders in total; P needs 60 orders. Machining pool is ₹4,00,000 for 20,000 total machine hours; P uses 4,000 hours. Using ABC, what is the total cost per unit of P?

The ABC cost per unit of P is ₹202. Ordering overhead is 60 orders at ₹500 = ₹30,000 and machining is 4,000 hours at ₹20 = ₹80,000. Together that is ₹1,10,000, or ₹22 per unit, added to prime cost of ₹180 per unit.

  1. A₹202Correct
  2. B₹196
  3. C₹186
  4. D₹180

Explanation

Ordering: ₹1,50,000 ÷ 300 = ₹500 per order, so 60 × 500 = ₹30,000. Machining: ₹4,00,000 ÷ 20,000 = ₹20 per hour, so 4,000 × 20 = ₹80,000. Overhead is ₹1,10,000 ÷ 5,000 = ₹22 per unit, and ₹120 + ₹60 + ₹22 = ₹202. Using only the machining pool gives ₹196, which omits the ordering cost.

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