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CMA Final · Strategic Cost Management · Activity Based Cost Management

Sundaram Auto Components Ltd pools its machine set-up costs of ₹6,00,000 and uses the number of set-ups as the cost driver. Total set-ups in the year are 400. Product Alpha required 90 set-ups and 30,000 units were produced. What is the set-up cost per unit of Alpha under ABC?

The set-up cost per unit of Alpha is ₹4.50. The cost driver rate is ₹6,00,000 divided by 400 set-ups, which is ₹1,500 per set-up. Alpha used 90 set-ups, so it absorbs ₹1,35,000, which spread over 30,000 units gives ₹4.50.

  1. A₹1.50
  2. B₹4.50Correct
  3. C₹2.00
  4. D₹6.00

Explanation

Rate per set-up = 6,00,000 / 400 = ₹1,500. Alpha is charged 90 x 1,500 = ₹1,35,000. Per unit = 1,35,000 / 30,000 = ₹4.50. Using 400 set-ups as the base for Alpha's share without applying 90 gives a wrong result.

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