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CA Intermediate · Cost and Management Accounting · Activity Based Costing

Sundaram Auto Parts has a quality inspection cost pool of ₹3,60,000. Total inspections expected in the period are 1,200, of which Product P needs 300 and Product Q needs 900. What is the inspection cost charged to Product P?

Product P is charged ₹90,000. The cost driver rate is ₹3,60,000 divided by 1,200 inspections, which is ₹300 per inspection, and P uses 300 inspections, giving 300 × ₹300 = ₹90,000.

  1. A₹90,000Correct
  2. B₹1,80,000
  3. C₹2,70,000
  4. D₹1,20,000

Explanation

Rate per inspection = 3,60,000 / 1,200 = ₹300. Product P: 300 × 300 = ₹90,000. Check: Q gets 900 × 300 = ₹2,70,000, and the total is ₹3,60,000. ₹2,70,000 is Q's share, a mix-up of the products.

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