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CMA Final · Strategic Cost Management · Activity Based Cost Management

Yamuna Auto Ltd has an ordering activity pool of Rs 2,40,000 and 800 purchase orders are placed, of which 200 relate to a customer-specific product line. If the company traces cost by orders, the ordering cost assigned to that line is:

The ordering cost assigned to the product line is Rs 60,000. The cost driver rate is Rs 300 per purchase order (Rs 2,40,000 divided by 800 orders), and the line consumes 200 orders, so 200 multiplied by Rs 300 gives Rs 60,000.

  1. ARs 60,000Correct
  2. BRs 80,000
  3. CRs 1,20,000
  4. DRs 48,000

Explanation

Rate per order = 2,40,000/800 = Rs 300. Cost for 200 orders = 200 x 300 = Rs 60,000. Rs 80,000 would wrongly use one-third of the pool without the driver.

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