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CA Intermediate · Cost and Management Accounting · Activity Based Costing

Sundaram Pumps Ltd. has a machine setup cost pool of ₹3,60,000 for the period. The cost driver is the number of setups. Product A needed 20 setups and Product B needed 40 setups, and no other products used setups. If A has 2,000 units produced, what is the setup cost per unit of A?

Setup cost per unit of A is ₹60. The rate is ₹3,60,000 divided by 60 total setups, or ₹6,000 per setup. A used 20 setups, so ₹1,20,000 is charged to it, and dividing by 2,000 units gives ₹60.

  1. A₹60Correct
  2. B₹90
  3. C₹180
  4. D₹30

Explanation

Total setups = 20 + 40 = 60. Rate per setup = 3,60,000 / 60 = ₹6,000. Product A's setup cost = 20 × 6,000 = ₹1,20,000. Per unit = 1,20,000 / 2,000 = ₹60. Dividing the pool by A's setups alone gives ₹90 (wrong base: 3,60,000/20/... not valid), and ₹180 is the full pool divided by A's units.

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