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CA Intermediate · Cost and Management Accounting · Activity Based Costing

Sundaram Auto Parts Ltd. has a quality inspection cost pool of Rs 3,60,000 per month. Inspection is driven by the number of inspections, expected at 1,200 per month. Product P needs 300 inspections and Product Q needs 500 inspections in the month. What inspection cost is assigned to Product Q?

The inspection cost assigned to Product Q is Rs 1,50,000. The cost driver rate is Rs 3,60,000 divided by 1,200 inspections, which gives Rs 300 per inspection, and Product Q uses 500 inspections, so 500 multiplied by Rs 300 equals Rs 1,50,000.

  1. ARs 1,50,000Correct
  2. BRs 90,000
  3. CRs 1,80,000
  4. DRs 2,16,000

Explanation

Cost driver rate = 3,60,000 / 1,200 = Rs 300 per inspection. Product Q = 500 x 300 = Rs 1,50,000. Rs 90,000 is Product P's share (300 x 300). Check: P 90,000 + Q 1,50,000 + other products 1,20,000 (400 inspections) = 3,60,000.

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