CA Inter P4 · Chapter 5 · Question 5 of 8
A company identifies three activities: Machining ₹6,00,000 (driver: 30,000 machine hours), Set-ups ₹1,50,000 (driver: 60 set-ups) and Inspection ₹90,000 (driver: 450 inspections). Product K has an output of 5,000 units and uses 4,000 machine hours, 12 set-ups and 75 inspections. The overhead cost per unit of Product K under ABC is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) ₹25.00
Explanation
Driver rates: machining ₹6,00,000/30,000 = ₹20 per hour; set-ups ₹1,50,000/60 = ₹2,500 per set-up; inspection ₹90,000/450 = ₹200 per inspection. Overheads of K = 4,000 x 20 + 12 x 2,500 + 75 x 200 = ₹80,000 + ₹30,000 + ₹15,000 = ₹1,25,000. Per unit = ₹1,25,000 / 5,000 = ₹25. A traditional machine-hour rate would give only ₹22.40 per unit.
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