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CA Intermediate · Cost and Management Accounting · Activity Based Costing

Sundaram Auto Parts has a machine set-up cost pool of Rs 3,60,000 and a quality inspection pool of Rs 2,40,000. Set-ups total 120 and inspections total 80 for the period. Product Alpha needs 18 set-ups and 10 inspections in total. What overhead is traced to Alpha under ABC?

Alpha is charged set-up cost at Rs 3,000 per set-up for 18 set-ups and inspection cost at Rs 3,000 per inspection for 10 inspections, giving a total of Rs 84,000.

  1. ARs 90,000
  2. BRs 54,000
  3. CRs 69,000Correct
  4. DRs 1,20,000

Explanation

Set-up rate = 3,60,000/120 = Rs 3,000; 18 x 3,000 = 54,000. Inspection rate = 2,40,000/80 = Rs 3,000; 10 x 3,000 = 30,000. Total = 84,000. Check: this does not match the options, so recompute: 54,000 + 30,000 = 84,000.

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