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CMA Foundation · Fundamentals of Financial and Cost Accounting · Cost, Cost Centre, Cost Unit and Cost Drivers

Sharma Components Ltd has a set-up cost pool of Rs 1,20,000 for the period. The pool is driven by the number of production runs. Product P had 12 runs, Product Q had 28 runs, so total runs were 40. What set-up cost is assigned to Product Q under activity based costing?

Product Q is assigned Rs 84,000. The set-up pool of Rs 1,20,000 divided by 40 total runs gives Rs 3,000 per run, and Q had 28 runs. The Rs 36,000 figure belongs to Product P, which had only 12 runs.

  1. ARs 36,000
  2. BRs 60,000
  3. CRs 84,000Correct
  4. DRs 1,20,000

Explanation

Rate per run = 1,20,000 / 40 = Rs 3,000. Product Q: 28 x 3,000 = Rs 84,000. Check: P gets 12 x 3,000 = 36,000, and 36,000 + 84,000 = 1,20,000. Rs 36,000 is the amount for P, the wrong product.

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