CA Intermediate · Cost and Management Accounting · Activity Based Costing
Sundaram Tools Ltd. has a machine setup cost pool of Rs 3,60,000 for the year, with the number of setups as the cost driver. Product P required 40 setups and product Q required 20 setups. Total setups for all products were 120. P produced 2,000 units. What is the setup cost per unit of P under ABC?
The setup cost per unit of P is Rs 60. The rate is Rs 3,60,000 divided by 120 setups, which is Rs 3,000 per setup. P's 40 setups cost Rs 1,20,000, and dividing by 2,000 units gives Rs 60.
- ARs 60Correct
- BRs 90
- CRs 180
- DRs 120
Explanation
Rate per setup = 3,60,000 / 120 = Rs 3,000. Setup cost of P = 40 x 3,000 = Rs 1,20,000. Per unit = 1,20,000 / 2,000 = Rs 60. Rs 90 would result from wrongly using only the P and Q setups (60) as the base: 3,60,000/60 = 6,000 x 40 = 2,40,000, then /2,000 = Rs 120, so Rs 120 is that error, and Rs 90 is not supported by the data.
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