CA Intermediate · Cost and Management Accounting · Activity Based Costing
Suresh Components Ltd has a cost pool for 'Material handling' of Rs 3,60,000 for the month. The cost driver is the number of material movements, estimated at 1,800 for the month. Product P requires 500 movements and Product Q requires 300 movements. What is the material handling cost to be assigned to Product P?
Product P is assigned Rs 1,00,000. The cost driver rate is Rs 3,60,000 divided by 1,800 movements, which is Rs 200 per movement, and P uses 500 movements. Multiplying 500 by Rs 200 gives Rs 1,00,000 of material handling cost for Product P.
- ARs 1,00,000Correct
- BRs 60,000
- CRs 1,60,000
- DRs 3,60,000
Explanation
Cost driver rate = 3,60,000 / 1,800 = Rs 200 per movement. Product P cost = 500 x 200 = Rs 1,00,000. Rs 60,000 is the cost for Q (300 x 200), and Rs 1,60,000 would wrongly add P and Q together.
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