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CA Intermediate · Cost and Management Accounting · Activity Based Costing

Sundaram Auto Parts has a quality inspection cost pool of ₹4,80,000 for the year. The cost driver is the number of inspections, and 1,600 inspections are expected in total. Product Alpha needs 500 inspections and Product Beta needs 300 inspections. What is the inspection cost assigned to Product Alpha and Product Beta respectively?

The cost driver rate is ₹4,80,000 divided by 1,600 inspections, which is ₹300 per inspection. Alpha with 500 inspections is charged ₹1,50,000 and Beta with 300 inspections is charged ₹90,000. The remaining inspections belong to other products.

  1. A₹1,50,000 and ₹90,000Correct
  2. B₹1,80,000 and ₹1,08,000
  3. C₹1,50,000 and ₹1,08,000
  4. D₹90,000 and ₹1,50,000

Explanation

Rate per inspection = 4,80,000 / 1,600 = ₹300. Alpha = 500 × 300 = ₹1,50,000; Beta = 300 × 200... correct: 300 × 300 = ₹90,000. Option B wrongly uses a rate of ₹360 (4,80,000/1,333), and option D swaps the products.

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