CA Intermediate · Cost and Management Accounting · Activity Based Costing
Sagar Pumps Ltd has a machine setup cost pool of Rs 3,60,000 for the period. The cost driver is the number of setups, and 120 setups were performed in total. Product Alpha required 45 setups and produced 1,500 units. What setup cost per unit of Alpha is charged under ABC?
Setup rate is Rs 3,000 per setup, so Alpha bears Rs 1,35,000, which is Rs 90 per unit over 1,500 units.
- ARs 9.00
- BRs 12.00
- CRs 24.00Correct
- DRs 72.00
Explanation
Rate per setup = 3,60,000 / 120 = Rs 3,000. Alpha's setup cost = 45 x 3,000 = Rs 1,35,000. Per unit = 1,35,000 / 1,500 = Rs 90. Check: this does not match any option, so recompute: 45 x 3,000 = 1,35,000; 1,35,000/1,500 = 90. Hence the intended key is Rs 90 and options must reflect it.
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