CMA Intermediate · Management Accounting · Activity Based Costing
Sundaram Pumps Ltd has a setup cost pool of ₹2,40,000 for the year, and the cost driver is the number of machine setups. A total of 80 setups were carried out, of which Product A needed 12. Product A makes 6,000 of the company's 30,000 total units. What setup cost is assigned to Product A under ABC?
Product A is assigned ₹36,000. The setup cost pool of ₹2,40,000 is divided by 80 setups to give ₹3,000 per setup, and Product A used 12 setups. Allocating by units produced would give ₹48,000, but ABC charges by the activity actually consumed.
- A₹36,000Correct
- B₹48,000
- C₹30,000
- D₹24,000
Explanation
The driver rate is ₹2,40,000 ÷ 80 setups = ₹3,000 per setup. Product A is charged 12 × ₹3,000 = ₹36,000. The figure of ₹48,000 comes from using a volume base (6,000/30,000 × ₹2,40,000), which ignores how many setups the product actually consumes.
Did you get it right without looking?
One question tells you little. A timed set on Activity Based Costing shows your real accuracy, how long you take and where you lose marks.
More Activity Based Costing questions
- Gupta Fabrics Ltd has a setup pool of ₹2,40,000 and a packing pool of ₹1,80,000. Setup driver: 80 setups (Product X 20, Product Y 60). Packi…
- Rao Electricals Ltd has overheads of ₹6,00,000, absorbed traditionally on 30,000 direct labour hours (Product M 10,000 hours, Product N 20,0…
- Meenakshi Labs has a quality inspection pool of ₹3,60,000. The practical capacity is 1,200 inspections, but only 900 were performed in the y…
- Nilgiri Tools has overheads of ₹6,00,000 absorbed on a per-unit basis under traditional costing. It makes 9,000 units of a high-volume produ…
- Which of the following correctly lists the usual sequence of steps when implementing Activity Based Costing?
- Which of the following best describes a 'cost driver' in Activity Based Costing?