04 Activity Based Costing Solutions

ACTIVITY BASED COSTING - SOLUTIONS
Chapter 4
Solution 1.
1. Traditional Absorption Costing
Particulars A B C Total
a) Quantity (units) 4,000 3,000 1,600 8,600
b) Direct labour (minutes) 30 45 60 -
c) Direct labour hours (a x B)/60 mins 2,000 2,250 1,600 5,850
Overhead rate per direct labour hour:
= Budgeted overheads ÷Budgeted labour hours
= ₹ 99,450 ÷ 5,850 hours
= ₹ 17 per direct labour hour
Unit Costs:
Particulars A (₹) B (₹) C (₹)
Direct costs:
- Direct labour 5 7.5 10
- Direct material 8 12 6
8.5 12.75 17
Production overhead: 𝟏𝟕 𝒙 𝟑𝟎 𝟏𝟕 𝒙 𝟒𝟓 𝟏𝟕 𝒙 𝟔𝟎
𝟔𝟎 𝟔𝟎 𝟔𝟎
Total unit costs 21.5 32.25 33
Number of units 4,000 3,000 1,600
Total costs 86,000 96,750 52,800
2. Activity Based Costing

Particulars A B C Total
Quantity (units) 4,000 3,000 1,600 -
Weight per unit (kg) 4 6 3 -
Total weight 16,000 18,000 4,800 38,000
Machine operations per unit 6 3 2 -
Total operations 24,000 9,000 3,200 36,200
Total batches of material 10 5 15 30
Material handling rate per kg. = ₹ 29,000 ÷ 38,800 kg. = ₹ 0.75 per kg.
Electricity rate per machine operations = ₹ 39,150 ÷ 36,200 = ₹ 1,082 per machine operations Storage rate per
batch = ₹ 31,200 ÷ 30 batches = ₹ 1,040 per batch
Unit Costs:
Particulars A (₹) B (₹) C (₹)
Direct costs:
- Direct labour 5 7.5 10
- Direct material 8 12 6
Production overhead:
3 4.5 2.25
Material handling:
(₹ 0.75 x 4) (₹ 0.75 x 6) (₹ 0.75 x 3)
6.49 3.25 2.16
Electricity:
(₹ 1.082 x 6) (₹ 1.082 x 3) (₹ 1.082 x 2)
Storage 2.6 1.73 9.75
₹ 𝟏𝟎 𝒙 ₹ 𝟏, 𝟎𝟒𝟎 ₹ 𝟓 𝒙 ₹ 𝟏, 𝟎𝟒𝟎 ₹ 𝟏𝟓 𝒙 ₹ 𝟏, 𝟎𝟒𝟎
𝟒, 𝟎𝟎𝟎 𝟑, 𝟎𝟎𝟎 𝟏, 𝟔𝟎𝟎
Total unit costs 25.09 28.98 30.16

Number of units 4,000 3,000 1,600
CA Nitin Guru | www.edu91.org 4.1

Total costs ₹ 1,00,360 ₹ 86,940 ₹ 48,256
3. Comments: The difference in the total costs under the two systems is due to the differences in the
overheads borne by each of the products. The Activity Based Costs appear to be more precise
Solution 2.
(i) Statement of cost allocation to each product from each activity
Particulars Product
M (₹) S (₹) T (₹) Total (₹)
Power (Refer to 40,000 (10,000 kWh 80,000 (20,000 60,000 (15,000 1,80,000
working note) × ₹4) kWh × ₹4) kWh
× ₹4)
Quality Inspections 1,05,000 (3,500 75,000 (2,500 90,000 (3,000 2,70,000
(Refer to inspections × ₹30) inspections × ₹30) inspections × ₹30)
working note)
Working note
Rate per unit of cost driver:
Power (₹ 2,00,000 / 50,000 kWh) ₹ 4/kWh
Quality inspection (₹ 3,00,000 / 10,000 inspections) ₹ 30 per inspection
(ii) Computation of cost of unused capacity for each activity:

Particulars (₹)
Power (₹2,00,000 – ₹ 1,80,000) 20,000
Quality Inspections (₹. 3,00,000 – ₹ 2,70,000) 30,000
Total cost of unused capacity 50,000
(iii) Factors management consider in choosing a capacity level to compute the budgeted fixed overhead cost
rate:
● Effect on product costing & capacity management
● Effect on pricing decisions.
● Effect on performance evaluation
● Effect on financial statements
● Regulatory requirements.
● Difficulties in forecasting chosen capacity level concepts.
Solution 3.
(i) Overheads application base: Direct labour hours
Particulars Equipment Y (₹) Equipment Z (₹)
Direct material cost 300 450
Direct labour cost 450 600
Overheads* 186.38 248.50
936.38 1,298.50
𝑩𝒖𝒅𝒈𝒆𝒕𝒆𝒅 𝒐𝒗𝒆𝒓𝒉𝒆𝒂𝒅𝒔 ₹ 𝟏𝟐,𝟒𝟐,𝟓𝟎𝟎

*Pre-determined rate = 𝑩𝒖𝒅𝒈𝒆𝒕𝒆𝒅 𝒅𝒊𝒓𝒆𝒄𝒕 𝒍𝒂𝒃𝒐𝒖𝒓 𝒉𝒐𝒖𝒓𝒔
= 𝟐𝟎,𝟎𝟎𝟎 𝒉𝒐𝒖𝒓𝒔
= ₹ 62.125
(ii) Estimation of Cost-Driver rate

Activity Overhead cost (₹) Cost driver level Cost driver rate (₹)
Order processing 2,10,000 600 orders processed 350
Machine processing 8,75,000 50,000 machine hours 17.50
Inspection 1,57,500 15,000 inspection hours 10.50

Direct material cost 300 450

Direct labour cost 450 600
Prime cost 750 1,050
Overhead cost
Order processing 350 : 250 1,22,500 87,500
Machine processing 23,000 : 27,000 4,02,500 4,72,500
Inspection 4,000 : 11,000 42,000 1,15,500
Total overhead cost 5,67,000 6,75,500
Per unit cost

5,67,000 /2,500 ₹ 226.80 ₹ 216.16
6,75,500/ 3,125
Unit manufacturing cost ₹ 976.80 ₹ 1,266.16
(iii)
Unit manufacturing cost–using direct
labour hours as an 936.38 1,298.50
application base
Unit manufacturing cost-using activity
976.80 1,266.16
based costing
Cost distortion (-) 40.42 + 32.34
Low volume product Y is under-costed and high volume product Z is over-costed using direct labour hours for
overhead absorption.
Solution 5.
Customers
A B C D E
Cases sold: (a) 4,680 19,688 1,36,800 71,550 8,775
Revenues at listed
price) (₹): (b) {(a) × 5,05,440 21,26,304 1,47,74,400 77,27,400 9,47,700
₹ 108)}
Discount (₹): (c) 12,31,200 2,57,580 94,770 (8,775
35,438 (19,688
{(a) × Discount per - (1,36,800 cases (71,550 cases × cases × ₹
cases × ₹ 1.80)
case} × ₹ 9) ₹ 3.60) 10.80)
Cost of goods sold
4,21,200 17,71,920 1,23,12,000 64,39,500 7,89,750
(₹) : (d) {(a) × ₹ 90}
Customer level operating activities costs
Order taking costs
(₹): (No. of 11,250 18,750 22,500 18,750 22,500
purchase × ₹750)
Customer visits
costs (₹) (No. of
1,200 1,800 3,600 1,200 1,800
customer visits × ₹
600)
Delivery vehicles
travel costs (₹) (₹
5.75 per km) (Kms
1,150 1,035 1,725 2,300 3,450
travelled by delivery
vehicles × ₹ 5.75
per km.
Product handling 17,550 73,830 5,13,000 2,68,313 32,906

costs (₹) {(a) ×₹
3.75}
Cost of expediting
deliveries (₹) {No.
of expedited - - - - 2,250
deliveries × ₹
2,250}
Total cost of
customer level
31,150 95,415 5,40,825 2,90,563 62,906
operating activities
(₹)
(i) Computation of Customer level operating income

Customers
A (₹) B (₹) C (₹) D (₹) E (₹)
Revenues (At list
price) (Refer to 5,05,440 21,26,304 1,47,74,400 77,27,400 9,47,700
working note)
Less: Discount
(Refer to working - 35,438 12,31,200 2,57,580 94,770
note)
Revenue (At
5,05,440 20,90,866 1,35,43,200 74,69,820 8,52,930
actual price)
Less: Cost of
goods sold (Refer 4,21,200 17,71,920 1,23,12,000 64,39,500 7,89,750
to working note)
Gross margin 84,240 3,18,946 12,31,200 10,30,320 63,180
Less: Customer
level operating
activities costs 31,150 95,415 5,40,825 2,90,563 62,906
(Refer to working
note
Customer level
53,090 2,23,531 6,90,375 7,39,757 274
operating income
Comment on the results: Customer D is the most profitable customer, despite having only 52.30% of the unit
volume of customer C. The main reason is that C receives a ₹9 per case discount while customer D receives
only a ₹3.60 discount per case. Customer E is less profitable, in comparison with the small customer A being
profitable. Customer E received a discount of ₹10.80 per case, makes more frequent orders, requires more
customer visits and requires more delivery kms. in comparison with customer A.
(ii) Insight gained by reporting both the list selling price and the actual selling price for each customer:
Separate reporting of both-the listed and actual selling prices enables Alpha Ltd. to examine which customer
has received what discount per case, whether the discount received has any relationship with the sales
volume. The data given below provides us with the following information;
Sales volume Discount per case (₹)
C (1,36,800 cases) 9.00
D (71,550 cases) 3.60
B (19,688 cases) 1.80
E (8,775 cases) 10.80
A (4,680 cases) 0
The above data clearly shows that the discount given to customers per case has a direct relationship with
sales volume, except in the case of customer E. The reasons for ₹10.80 discount per case for customer E
should be explored.

Solution 6.
Under Traditional Method
(Absorption O/H according to machine hour rate)
Step 1 Calculating O/H absorption rate.
O/H Absorption Rate = Total O/H Cost/Total hour = 15,60,000/78,000 = ₹ 20/hour
(a) Statement for distribution of O/H
Particulars Gel pen Ball pen
Output 5,500 24,000
O/H expense 24,000 x 20 = 4,80,000 54,000 x 20 = 10,80,000
Total O/H 4,80,000 10,80,000
÷ units 5,500 24,000
₹ 87.27/unit ₹ 45/unit
(b) Statement of cost driver rate

Activity Amount Cost driver (A) Cost driver unit (B) Cost driver rate (A÷B)
Volume related 4,75,020 Machine hours (24,000 + 54,000) 6.09/hour
Set up related 5,79,988 No. of setup 6,744.05/set up
Purchase related 5,04,992 No. of purchase order 734/order
Statement of cost apportionment

Volume related @ 6.09 6.09 x 24,000 = 1,46,160 6.09 x 54,000 = 3,28,860
Set up ₹ 6,744.05 6744.05 x 30 = 2,02,321 (approx.) 6,744.05 x 56 = 3,77,667 (approx.)
Purchase @734 734 x 240 = 1,76,160 734 x 448 = 3,28,832
5,24,641 10,35,359
÷ Units ÷ 5,500 ÷ 24,000
O/H cost per unit ₹ 95.39 ₹ 43.14
Statement to find cost difference

Traditional Method 87.27 45
Less: ABC Method (95.39) (43.14)
Difference (8.12) 1.86
It shows that gel pen was shown at lower cost in traditional costing system whereas ball pen is shown at
higher cost. ABC is more appropriate method for distribution of cost.
Solution 7.
(i) Statement for distribution of O/H
Material 26,38,700
Labour 3,75,200
O/H 5,17,930
Total 35,31,830
÷ units ÷ 15,000
Cost per unit 235.46
O/H absorption rate = 51,79,300/3,01,39,000 x 100

O/H = Prime cost x 17.1847%
= (26,38,700 + 3,75,200) x 17.1847%
= 30,13,900 x 17.1847%
= 5,17,930 (approx.)
Question ne bola hai ki O/H prime cost ki basis pe absorb hote hain.
(ii) Statement for cost driver rate

Activity Amount (A) Cost driver Cost driver unit Cost driver rate (A
(B) ÷ B)
Material 22,50,000 No. of purchase 1,500 1,500
procurement order
Maintenance 17,30,000 Maintenance 9,080 190.53
hours
Setup 6,84,500 No. of setup 2,250 304.22
Quality control 5,14,800 No. of inspections 2,710 189.96
(iii) Statement of Total Cost and Cost per unit

Material 26,38,700
Wages 3,75,200
Material procurement (48 x 1,500) 72,000
Maintenance (810 x 190.53) 1,54,329
Set up (40 x 304.22) 12,169
Quality control (189.96 x 25) 4,749
Total cost 32,57,147
÷ units ÷ 15,000
Cost per unit 217.14
Solution 8.
(i) Statement for calculating manufacturing cost per unit
Particulars A B
Total Pu Total Pu
Output 3,200 3,850
Material 11,20,000 350 15,40,000 400
Labour 11,52,000 360 18,48,000 480
O/H 5,76,000 60 x 3 = 180 9,24,000 60 x 4 = 240
Total 28,48,000 890 43,12,000 1,120
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑂/𝐻 15,00,000

O/H Absorption rate = 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 ℎ𝑜𝑢𝑟𝑠
= 25,000
= ₹ 60/hour
(ii) Statement of Cost driver rate

Activity Amount (A) Cost driver Cost driver unit (B) Cost driver rate (A ÷ B)
Orders
Order processing 3,00,000 400 + 200 = 600 500
processed
Machine hours 22,500 + 27,500 =
Machine processing 10,00,000 20
worked 50,000
Inspection 5,000 + 15,000 =
Product inspection 2,00,000 10
hours 20,000
Statement of cost allocation

Particulars A B
Order processing 500 x 400 = 2,00,000 500 x 200 = 1,00,000
Machine processing 20 x 22,500 = 4,50,000 20 x 27,500 = 5,50,000
Product Inspection 10 x 5,000 = 50,000 10 x 15,000 = 1,50,000
Total 7,00,000 8,00,000
÷ units ÷ 3,200 ÷ 3,850
Cost per unit 218.75 207.79
Statement showing manufacturing cost

Particulars A B
Total pu Total pu
Output 3,200 3,850
Material 11,20,000 350 15,40,000 400

Labour 11,52,000 360 18,48,000 480
O/H 7,00,000 218.75 7,99,992 207.79
Total 29,72,000 928.75 41,87,992 1,087.79
(iii) Calculating Cost distortion
A B
Cost in absorption costing 890 1,120
Cost in ABC Costing 928.8 1087.8
Cost distortion -38.75 32.21
Solution 9.
Statement of cost driver rate
Cost driver rate
Activity Amount (A) Cost driver Cost driver unit (B)
(A ÷ B)
Purchase 300 + 450 + 500 =
Stores receiving 2,96,000 236.8
requisitions 1,250
No. of production 750 + 1,050 + 1,200 =
Inspection 8,94,000 298
runs 3,000
Dispatch 2,10,000 Orders executed 180 + 270 + 300 = 750 280
360 + 390 + 450 =
Machine set up 12,00,000 No. of set ups 1,000
1,200
Statement of cost allocation

Particulars A B C
Stores receiving 236.8 x 300 = 71,040 236.8 x 450 = 1,06,560 236.8 x 500 = 1,18,400
Inspection 298 x 750 = 2,23,500 298 x 1050 = 3,12,900 298 x 1200 = 3,57,600
Dispatch 280 x 180 = 50,400 280 x 270 = 75,600 280 x 300 = 84,000
Machine setup 1,000 x 360 = 3,60,000 1,000 x 390 = 3,90,000 1,000 x 450 = 4,50,000
Total 7,04,940 8,85,060 10,10,000
÷ units ÷ 10,000 ÷ 20,000 ÷ 30,000
₹ 70.494 ₹ 44.253 ₹ 33.67
Statement for distribution of O/H

Particulars A B C
Output 10,000 20,000 30,000
Material 5,00,000 50 8,00,000 40 12,00,000 40
Labour 3,00,000 30 8,00,000 40 15,00,000 50
O/H 7,04,940 70.494 8,85,060 44.253 10,10,100 33.67
Total 15,04,940 150.494 24,85,060 124.253 37,10,100 123.67
Solution 10.
(i) Statement to calculate operating income
Particulars Soft drink Fresh produce Packaged food Total
Revenue 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Less: COGS (30,00,000) (75,00,000) (45,00,000) 1,50,00,000
Less: support cost
(30% of COGS) (9,00,000) (22,50,000) (13,50,000) (45,00,000)
Operating Income 67,500 7,53,000 1,99,500 10,20,000
67,500/39,67,500 7,53,000/10,50,300 1,99,500/60,49,500 10,20,000/2,05,20,000
Operating Income
x 100 x 100 x 100 x 100
1.70% 7.17% 3.30% 4.97%
Working Note
Total support cost/OH = 45,00,000

Support Cost% = 45,00,000/1,50,00,000 x 100 = 30%
Kyunki question ne bola hai ki support cost is allocated on the basis of cost of goods sold.
(ii) Statement to calculate operating income using ABC method.

Particulars Soft drink Fresh produce Packaged food Total
Revenue 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Less: COGS (30,00,000) (75,00,000) (45,00,000) (1,50,00,000)
Less: Bottle return
-60,000 - - -60,000
cost
500 x 360 500 x 840 500 x 360
Ordering
(1,80,000) (4,20,000) (1,80,000) (7,80,000)
400 x 300 400 x 2,190 400 x 660
Delivering
(1,20,000) (8,76,000) (2,64,000) (12,60,000)
100 x 540 100 x 5,400 100 x 2,700
Shelf stocking
-54,000 (5,40,000) (2,70,000) (8,64,000)
1 x 1,26,000 = 1 x 11,04,000 = 1 x 3,06,000 =
Customer Support (15,36,000)
1,26,000 11,04,000 3,06,000
Operating Income 4,27,500 63,000 5,29,500 10,20,000
4,27,500/39,67,500 63,000/1,05,03,000 5,29,500/60,49,500 10,20,000/2,05,20,0
Operating Income % x x x 00
100 = 10.78% 100 = 0.60% 100 = 8.75% x 100 = 4.97%
Working note
Statement to find cost driver rate
Activity Amount (A) Cost driver Cost driver unit (B) Cost driver rate (A ÷ B)
Ordering 7,80,000 Placing of orders 1,560 500
Delivering 12,60,000 Physical delivery 3,150 400
Stocking of
Shelf Stocking 8,64,000 8,640 100
goods
Customer Assistance
15,36,000 15,36,000 1
support provided
Solution 11.
Statement showing cost allocation to each product
Particulars M S T Product Total
10,000 x 80 20,000 x 80 15,000 x 80
Power@180 36,00,000
= 8,00,000 = 16,00,000 = 12,00,000
Quality 3,500 x 600 = 2,500 x 600 = 3,000 x 600 =
54,00,000
Inspection 21,00,000 15,00,000 18,00,000
Statement to calculate cost driver rate

Activity Amount Cost driver Cost driver unit Cost driver rate
Power 40,00,000 Kilowatt hours 50,000 80
Quality inspection 60,00,000 No. of inspections 10,000 600
Statement to calculate unused capacity

Power (50,000 – 45,000) 5,000
Quality Inspections (10,000 – 9,000) 1,000
Solution 12.
Total labour working hours and overhead costs.
Particulars Product X Product Y Product Z Total
Production Units 45,000 52,500 30,000 1,27,500
Hour per unit 3 5 7
Total hours 1,35,000 2,62,500 2,10,000 6,07,500

Rate per hour ₹ 80
Total overhead ₹ 4,86,00,000
Cost per activity and driver
Machine set Customer order Customer complaint

Activity Total
up processing management
Total overhead (₹) 1,45,80,000 1,45,80,000 1,94,40,000 4,86,00,000
No. of driver 600 2,400 8,000
Cost per driver (₹) 24,300 6,075 2,430
(i) Computation of Overhead cost per unit:

Particulars Product X Product Y Product Z
No. of machine setup 40 160 400
Cost per driver (₹) 24,300 24,300 24,300
Total machine setup cost (₹) (A) 9,72,000 38,88,000 97,20,000
No. of purchase orders 400 800 1200
Cost per driver (₹) 6,075 6,075 6,075
Total order processing cost (₹) (B) 24,30,000 48,60,000 72,90,000
No. of customer 1,000 2,200 4,800
Cost per driver (₹) 2,430 2,430 2,430
Total customer complaint
24,30,000 53,46,000 1,16,64,0000
management cost (₹) (C)
Total overhead cost (₹) (A+B+C) 58,32,000 1,40,94,000 2,86,74,000
Production units 45,000 52,500 30,000
Cost per unit (₹) 129.60 268.46 955.80
(ii) Determination of Selling price per unit

Product X Product Y Product Z
Particulars
(using Machine A) (using Machine B) (using Machine C)
Material cost per unit (₹) 350.00 460.00 410.00
Wages per unit @ ₹ 80 per hour 240.00 400.00 560.00
Overhead cost per unit (₹) 129.60 268.46 955.80
Total cost per unit (₹) 719.60 1,128.46 1,925.80
Profit (25% profit markup) (₹) 179.90 282.11 481.45
Selling price (₹) 899.50 1,410.57 2,407.25
Solution 13.
(i) Statement showing total cost of each product assuming absorption of overheads on Machine Hour Rate
Basis.
Particulars A B C D Total
Output (units) 100 110 120 150 480
Direct material (₹) 30 40 35 45 150
Direct Labour (₹) 25 30 30 40 125
Direct labour-
5 4 3 4
Machine hrs
Overhead @ ₹ 30/- per Machine hr 150 120 90 120 480
Total cost per unit (₹) 205 190 155 205 755
Total cost (₹) 20,500 20,900 18,600 30,750 90,750
𝑻𝒐𝒕𝒂𝒍 𝒐𝒗𝒆𝒓𝒉𝒆𝒂𝒅 𝒄𝒐𝒔𝒕 ₹ 𝟓𝟕,𝟎𝟎𝟎

Overhead rate = 𝑻𝒐𝒕𝒂𝒍 𝑴 𝑯𝒐𝒖𝒓𝒔
= 𝟏,𝟗𝟎𝟎
= ₹ 30 per unit
Total Overheads ₹
Factory works expenses 22,500 Factory exp per unit 22,500 / 1,900 = ₹ 11.84

Stores receiving
Stores receiving cost 8,100 8100 / 100 = ₹ 81
cost
Machine set up costs 12,200 Machine set-up cost 12,200 / 48 = ₹ 254.1
Costs relating to quality control 4,600 Cost relating to QC 4,600/48 =₹ 95.83
Expense relating to material handling & Material handling
9,600 9,600 / 96 = ₹ 100/-
dispatch & dispatch
Total 57,000
Statement showing total cost of each product assuming activity based costing.
Particulars A B C D Total
Output (units) 100 110 120 150 480
No. of production runs 10 11 12 15 48
No. of stores requisition 25 25 25 25 100
No. of sales orders 20 22 24 30 96
Unit costs - Direct material (₹) 30 40 35 45
Unit costs - Direct Labour (₹) 25 30 30 40
Unit costs - Factory works expenses (₹) 59.20 47.36 35.52 47.36
Unit costs - Stores
20.25 18.41 16.88 13.50
receiving cost (₹)
Unit costs - Machine set-up cost (₹) 25.42 25.42 25.42 25.42
Unit costs – QC (₹) 9.58 9.58 9.58 9.58
Unit costs –Material Handling (₹) 20 20 20 20
Unit cost (₹) 189.45 190.77 172.40 200.86
Total cost (₹) 18,945 20,984.7 20,688 30,129
(iii) Statement showing differences (in ₹)

Particulars A B C D
Unit cost MHR 205 190 155 205
Unit cost ABC 189.45 190.77 172.40 200.86
Unit cost - difference 15.55 -0.77 -17.40 4.14
Total cost MHR 20,500 20,900 18,600 30,750
Total cost ABC 18,945 20,985 20,688 30,128
The difference is that A consumes comparatively more of Machine hours.
The use of activity based costing gives different product costs than what were arrived at by utilizing traditional
costing. It can be argued that Product costs using ABC are more precise as overheads have been identified
with specific activities.
Solution 14.
Statement Showing Allocation of Manufacturing Overheads Using Principles of Activity Based Costing.
Cost allocation basis
Activity Centre Traceable cost ₹ Cost allocation basis
Royal (₹) Nova (₹)
Soldering 9,42,000 385 : 1185 2,31,000 7,11,000
Shipments 8,60,000 38 : 162 1,63,400 6,96,600
Quality control 12,40,000 213 : 562 3,40,800 8,99,200
Purchase orders 9,50,400 109980 : 80100 5,49,900 4,00,500
Machine lower 57,600 16:176 4,800 52,800
Machine set ups 7,50,000 14:16 3,50,000 4,00,000
48,00,000 16,39,900 31,60,100
Units produced and sold 4,000 22,000
Manufacturing
₹ 409.98 ₹ 143.64
Overheads Cost per unit
(ii) Statement Showing Product Cost and Profitability using Activity Based Costing

Royal (per unit cost Nova (per unit cost
Particulars Total ₹
₹) ₹)
Standard cost other
than manufacturing 698 370
OHs cost
Manufacturing OHs
using activity-based 409.98 143.64
costing
Cost 1,107.98 513.64
Selling Price/unit 1,140 900
Gross Margin / unit 32.02 386.36
Gross Margin 1,28,080 84,99,920 86,28,000
Selling & Adm.
9,78,000 58,30,000 68,08,000
Expenses
Net Income (8,49,920) 26,69,920 18,20,000
(iii) Novo Model should continue to be bread and butter product and Royal model should not be
over-emphasized; rather it’s pricing is required to be corrected.
Solution 15.
(i) Customer Profitability Analysis ABC Bank – Premier Account
Activity based cost Customers

Activity
(₹) X (₹) Y (₹) Z (₹)
625 (5 x
Deposits/withdrawal with teller 125 5000 (40 x 125) 6250 (50 x 125)
125)
640 (16 x
Deposits/withdrawal with ATM 40 400 (10 x 40) 800 (20 x 40)
40)
800 (2 x
Bank cheques written 400 3600 (9 x 400) 1200 (3 x 400)
400)
3600 (6 x
Foreign currency drafts 600 2400 (4 x 600) 600 (1 x 600)
600)
Customer cost (A) 12,150 10,500 7,840

Spread on Average balance 1650 (3% x 1200 (3% x 37500 (3% x
3%
maintained 55,000) 40,000) 12,50,000)
Service fee ₹ 1,000 p.m. 12,000
1,650 13,200 37,500
Customers
Particulars
X (₹) Y (₹) Z (₹)
Customer Pofitability
₹ (10,500) ₹ 2,700 ₹ 29,660
(Benefits – Costs)
(ii) Customer Z is most profitable and is cross-subsidizing the most demanding customer X. Customer Y is
paying for the services used, because of not being able to maintain minimum balance. No doubt, ‘Premier
Account’ product offering is profitable as a whole, but the worry is of not finding customers like customer Z
who will maintain a balance higher than the stipulated minimum. It appears, the minimum balance stipulated
is inadequate considering the services availed by depositors in ‘Premium Account’.
(iii) The changes suggested to ABC Bank’s ‘Premier Account’ are as follows:
● Increase the requirement of minimum balance from ₹ 50,000 to ₹ 1,00,000.
● Charge for value added services like Foreign Currency Drafts.

● Do not allow deposits/withdrawal below ₹ 10,000 at the teller. Only ATM machine withdrawal is
allowed.
● Inquiries about account balance to be entertained only through Phone Banking/ATM.
Solution 17:
Statement Showing “Budgeted Cost per unit of the Product”
Activity Activity No. of Activity
Activity Cost Driver Units of Rate Deposits Loans Credit
(Budgeted) Activity (₹) Cards
(₹) Driver
(Budget)
ATM 8,00,000 No. of ATM 2,00,000 4.00 6,00,000 ---- 2,00,000
Services Transaction
Computer 10,00,000 No. of
Processing Computer 20,00,000 0.50 7,50,000 1,00,000 1,50,000
processing
Transaction
Issuing 20,00,000 No. of 5,00,000 4.00 14,00,000 2,00,000 4,00,000
Statements Statements
Customer 3,60,000 Telephone 7,20,000 0.50 1,80,000 90,000 90,000
Inquiries Minutes
Budgeted 41,60,000 29,30,000 3,90,000 8,40,000
Cost
Units of Product (as estimated in the budget period) 58,600 13,000 14,000
Budgeted Cost per unit of the product 50 30 60
Working Note
Activity Budgeted Cost Remark
(₹)
ATM Services:
a) Machine Maintenance 4,00,000 All fixed, no change.
b) Rents 2,00,000 Fully fixed, no change.
c) Currency Replenishment 2,00,000 Doubled during budget period
Cost
Total 8,00,000
Computer Processing 2,50,000 ₹ 2,50,000 (half of ₹ 5,00,000) is
fixed and no change is expected.
7,50,000 ₹ 2,50,000 (variable portion) is
expected to increase to three times
the current level.
Total 10,00,000
Issuing Statements 18,00,000 Existing
2,00,000 2 lakh statements are expected to
be increased in budgeted period.
For every increase of one lakh
statement, one lakh rupees is the
budgeted increase.
Total 20,00,000
Computer Inquiries 3,60,000 Estimated to increase by 80%
during the budget period. (₹
2,00,000 x 180%)
Total 3,60,000
Solution 18:
(i) Statement Showing “Cost per unit - Traditional Method”
Particulars of costs P Q R
(₹) (₹) (₹)

Direct Materials 90 80 120
Direct Labour [(4, 12, 8 hours) × ₹ 20] 80 240 160
Production Overheads [(10, 18, 14 hours) × ₹ 6] 60 108 84
Cost per unit 230 428 364
(ii) Statement Showing “Cost per unit - Activity Based Costing”

Products P Q R
Production (units) 3,000 5,000 20,000
(₹) (₹) (₹)
Direct Materials (90, 80, 120) 2,70,000 4,00,000 24,00,000
Direct Labour (80, 240, 160) 2,40,000 12,00,000 32,00,000
Machine Related Costs @ ₹ 1.80 per hour 54,000 1,62,000 5,04,000
(30,000, 90,000, 2,80,000)
Setup Costs @ ₹ 9,600 per setup 1,92,000 96,000 1,92,000
(20, 10, 20)
Inspection Costs @ ₹ 4,800 per inspection (100, 4,80,000 1,92,000 2,88,000
40, 60)
Purchase Related Costs @ ₹ 750 per purchase 45,000 75,000 1,20,000
(60, 100, 160)
Total Costs 12,81,000 21,25,000 67,04,000
Cost per unit (Total Cost ÷ Units) 427.00 425.00 335.20
Workings
Number of Batches, Purchase Orders, and Inspections-
Particulars P Q R Total
A. Production (units) 3,000 5,000 20,000
B. Batch Size (units) 150 500 1,000
C. Number of Batches (A÷B) 20 10 20 50
D. Number of Purchase Order per batch 3 10 8
E. Total Purchase Orders [C × D] 60 100 160 320
F. Number of Inspections per batch 5 4 3
G. Total Inspections [C × F] 100 40 60 200
Total Machine Hours-

Particulars P Q R
A. Machine Hours per unit 10 18 14
B. Production (units) 3,000 5,000 20,000
C. Total Machine Hours [A × B] 30,000 90,000 2,80,000
Total Machine Hours = 4,00,000
Total Production Overheads-
= 4,00,000 hrs. × ₹ 6 = ₹ 24,00,000
Cost Driver Rates-

Cost Pool % Overheads Cost Driver Cost Driver Cost Driver Rate
(₹) Basis (Units) (₹)
Setup 20% 4,80,000 Number of 50 9,600 per Setup
batches
Inspection 40% 9,60,000 Number of 200 4,800 per
inspections Inspection
Purchases 10% 2,40,000 Number of 320 750 per Purchase
purchases
Machine Hours 30% 7,20,000 Machine 4,00,000 1.80 per Machine
Hours Hour

Solution 19:
(i) Statement of Operating income and Operating income as a percentage of revenues for each product line
(When support costs are allocated to product lines on the basis of cost of goods sold of each product)
Soft drinks Fresh Packaged Total (₹)
(₹) produce (₹) food (₹)
Revenues (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Cost of goods sold (COGS) (B) 30,00,000 75,00,000 45,00,000 1,50,00,000
Support cost (30% of COGS) (C) 9,00,000 22,50,000 13,50,000 45,00,000
(Refer working notes)
Total cost: (D) = {(B) + (C)} 39,00,000 97,50,000 58,50,000 1,95,00,000
Operating income: E= {(A)-(D)} 67,500 7,53,000 1,99,500 10,20,000
Operating income as a 1.70% 7.17% 3.30% 4.97%
percentage of revenues:
(E/A) × 100
Working notes:
1. Total support Cost:
(₹)
Bottles returns 60,000
Ordering 7,80,000
Delivery 12,60,000
Shelf stocking 8,64,000
Customer support 15,36,000
Total support cost 45,00,000
2. Percentage of support cost to cost of goods sold (COGS):

𝑇𝑜𝑡𝑎𝑙 𝑆𝑢𝑝𝑝𝑜𝑟𝑡 𝐶𝑜𝑠𝑡
= 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑 x 100
₹45,00,000
= ₹1,50,00,000
x 100 = 30%
3. Cost for each activity cost driver:

Activity Total Cost Cost-allocation base Cost driver rate
(1) (₹) (3) (4)=[(2)÷(3)]
(2)
Ordering 7,80,000 1,560 purchase ₹ 500 per purchase
orders order
Delivery 12,60,000 3,150 deliveries ₹ 400 per delivery
Shelf stocking 8,64,000 8,640 hours of ₹ 100 per stocking hour
shelf-stocking time
Customer Support 15,36,000 15,36,000 items sold ₹ 1 per item sold
(ii) Statement of Operating income and Operating income as a percentage of revenues for each
product line
(When support costs are allocated to product lines using an activity based costing system)
Soft drinks (₹) Fresh produce Packaged Total (₹)
(₹) food (₹)
Revenues (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Cost & goods sold 30,00,000 75,00,000 45,00,000 1,50,00,000
Bottle return costs 60,000 0 0 60,000
Ordering cost* (360:840:360) 1,80,000 4,20,000 1,80,000 7,80,000
Delivery cost* (300:2190:660) 1,20,000 8,76,000 2,64,000 12,60,000
Shelf stocking cost* 54,000 5,40,000 2,70,000 8,64,000
(540:5400:2700)
Customer Support cost* 1,26,000 11,04,000 3,06,000 15,36,000
(1,26,000:11,04,000:3,06,000)

Total cost: (B) 35,40,000 1,04,40,000 55,20,000 1,95,00,000
Operating income C:{(A)- (B)} 4,27,500 63,000 5,29,000 10,20,000
Operating income as a % of 10.78% 0.60% 8.75% 4.97%
revenues
* Refer to working note 3
Solution 20:
(i) Traditional Absorption Costing
BABYSOFT- BABYSOFT- BABYSOFT- Total
Gold Pearl Diamond
(a )Production of soaps 4,000 3,000 2,000 9,000
(Units)
(b) Direct labour 30 40 60 -
(minutes)
(c) Direct labour hours 2,000 2,000 2,000 6,000
(a × b)/60 minutes
= Budgeted overheads ÷ Budgeted labour hours
= ₹ 1,98,000 ÷ 6,000 hours
Unit Costs:
BABYSOFT- BABYSOFT- BABYSOFT-
Gold Pearl Diamond
(₹) (₹) (₹)
Direct Costs: 5.00 6.67 10.00
- Direct Labour
167.50 215.50 248.50
- Direct Material
(Refer working note1)
16.50 22.00 33.00
- Production
Overhead:
Total units costs 189.00 244.17 291.50
Number of units 4,000 3,000 2,000
Total Costs 7,56,000 7,32,510 5,83,000
Working note-1
Calculation of Direct material cost
BABYSOFT- Gold BABYSOFT- BABYSOFT- Diamond
(₹) Pearl (₹)
(₹)
Essential Oils 120.00 165.00 195.00
Cocoa Butter 40.00 40.00 40.00
Filtered Water 4.50 4.50 4.50
Chemicals 3.00 6.00 9.00
Total costs 167.50 215.50 248.50
(ii) Activity Based Costing

BABYSOFT- BABYSOFT- BABYSOFT- Total
Gold Pearl Diamond
Quantity (units) 4,000 3,000 2,000 -
Weight per unit (grams) 108 106 117
{(60 x 0.8) {(55 × 0.8) {(65 x 0.8) + 20 -
+20 + 30+ + 20+30+ + 30 + 15+}
10} 12}
Total weight (grams 4,32,000 3,18,000 2,34,000 9,84,000

Direct labour (minutes) 30 40 60 -
Direct labour hours 2,000 2,000 2,000
6,000
Machine operations per 5 5 6 -
unit
Total operations 20,000 15,000 12,000 47,000
Forklifting rate per gram = ₹ 58,000 ÷ 9,84,000 grams

= ₹ 0.06 per gram
Supervising rate per direct = ₹ 60,000 ÷ 6,000 hours
labour hour = ₹ 10 per labour hour
Utilities rate per machine operations = ₹ 80,000 ÷ 47,000 machine operations
= ₹ 1.70 per machine operations
Unit Costs under ABC:

BABYSOFT- BABYSOFT- BABYSOFT-
Gold Pearl Diamond
(₹) (₹) (₹)
Direct Costs:
- Direct Labour 5.00 6.67 10.00
- Direct Material 167.50 215.50 248.50
Production Overhead: 6.48 6.36 7.02
- Forklifting cost (0.06 x 108 (0.06 x 106) (0.06 x 117)
5.00 6.67 10.00
- Supervising cost 8.50 8.50 10.20
- Utilities (1.70 x 5) (1.70 x 5) (1.70 x 6)
Total units costs 192.48 243.70 285.72
Number of units 4,000 3,000 2,000
Total Costs 7,69,920 7,31,100 5,71,440
(iii) Comments: The difference in the total costs under the two systems is due to the differences in the
overheads borne by each of the products. The Activity Based Costs appear to be more accurate.
Solution 21:
(i) Profit Statement using Absorption costing method:
Particulars PRODUCT Total
X Y Z
A. Sales Quantity 1,00,000 80,000 60,000 2,40,000
B. Selling price per 90 180 140
unit (₹)
C. Sales Value (₹) 90,00,000 1,44,00,000 84,00,000 3,18,00,000
[A×B]
D. Direct cost per 50 90 95
unit (₹)
E. Direct Cost (₹) 50,00,000 72,00,000 57,00,000 1,79,00,000
[A×D]
F. Overheads:
(i) Machine 24,00,000 25,60,000 24,00,000 73,60,000
department
(₹) (Working note-1)
(ii) Assembly 30,00,000 16,00,000 9,00,000 55,00,000
department
(₹) (Working note-1)
G. Total Cost (₹) 1,04,00,000 1,13,60,000 90,00,000 3,07,60,000
[E+F]
H. Profit (C-G) (14,00,000) 30,40,000 (6,00,000) 10,40,000

(ii) Profit Statement using Activity based costing (ABC) method:

Particulars Product Total
X Y Z
Sales Quantity 1,00,000 80,000 60,000
Selling price per unit (₹) 90 180 140
Sales Value (₹) [A×B] 90,00,000 1,44,00,000 84,00,000 3,18,00,000
Direct cost per unit (₹) 50 90 95
Direct Cost (₹) [A×D] 50,00,000 72,00,000 57,00,000 1,79,00,000
Overheads:
(Refer working note-3)
Machining services (₹) 21,00,000 22,40,000 21,00,000 64,40,000
Assembly services (₹) 24,00,000 12,80,000 7,20,000 44,00,000
Set-up costs (₹) 4,50,000 3,00,000 1,50,000 9,00,000
Order processing (₹) 2,20,000 2,40,000 2,60,000 7,20,000
Purchasing (₹) 1,50,000 1,75,000 75,000 4,00,000
Total Cost (₹) [E+F] 1,03,20,000 1,14,35,000 90,05,000 3,07,60,000
Profit (₹) (C-G) (13,20,000) 29,65,000 (6,05,000) 10,40,000
Working Notes:
1.
Products
X Y Z Total
A. Production (units) 1,00,000 80,000 60,000
B. Machine hours 3 4 5
per unit
C. Total Machine 3,00,000 3,20,000 3,00,000 9,20,000
hours [A×B]
D. Rate per hour (₹) 8 8 8
E. Machine Dept. 24,00,000 25,60,000 24,00,000 73,60,000
cost [C×D]
F. Labour hours per 6 4 3
unit
G. Total labour 6,00,000 3,20,000 1,80,000 11,00,000
hours [A×F]
H.Rate per hour (₹) 5 5 5
I. Assembly Dept. 30,00,000 16,00,000 9,00,000 55,00,000
cost [G×H]
Machine hour rate = ₹ 73,60,000/9,20,000hours = ₹ 8

Labour hour rate = ₹ 55,00,000/11,00,000hours = ₹ 5
2. Calculation of cost driver rate:

Cost Pool Amount Cost Driver Quantity Driver rate
(₹) (₹)
Machining services 64,40,000 Machine hours 9,20,000 hours 7.00
Assembly services 44,00,000 Direct labour hours 11,00,000 hours 4.00
Set-up costs 9,00,000 Machine set-ups 9,000 set-ups 100.00
Order processing 7,20,000 Customer orders 7,200 orders 100.00
Purchasing 4,00,000 Purchase orders 800 orders 500.00
3. Calculation of activity-wise cost :

Products
X Y Z Total

A. Machining hours 3,00,000 3,20,000 3,00,000 9,20,000
(Refer Working note-1)
B. Machine hour rate (₹) 7 7 7
C.Machining services cost (₹) [A×B] 21,00,000 22,40,000 21,00,000 64,40,000
D. Labour hours 6,00,000 3,20,000 1,80,000 11,00,000
E. Labour hour rate (₹) 4 4 4
F. Assembly services cost (₹) [D×E] 24,00,000 12,80,000 7,20,000 44,00,000
G. Machine set-ups 4,500 3,000 1,500 9,000
H. Rate per set-up (₹) 100 100 100
I. Set-up cost (₹) [G×H] 4,50,000 3,00,000 1,50,000 9,00,000
J. Customer orders 2,200 2,400 2,600 7,200
K. Rate per order (₹) 100 100 100
L. Order processing cost (₹) [J×K] 2,20,000 2,40,000 2,60,000 7,20,000
M. Purchase orders 300 350 150 800
N. Rate per order (₹) 500 500 500
O. Purchasing cost (₹) [M×N] 1,50,000 1,75,000 75,000 4,00,000
Solution 22:
(i) Calculation of cost driver rate:
Cost pool Budgeted overheads Cost driver Cost driver rate (₹)
(₹)
Material procurement 18,42,000 1,200 1,535.00
Material handling 8,50,000 1,240 685.48
Maintenance 24,56,000 17,550 139.94
Set-up 9,12,000 1,450 628.97
Quality control 4,42,000 1,820 242.86
(ii) Calculation of cost for the batch:

Particulars Amount (₹) Amount (₹)
Material cost 24,62,000.00
Wages 4,68,500.00
Overheads:
· Material procurement (₹ 1,535×56 orders) 85,960.00
· Material handling (₹ 685.48×84 movements) 57,580.32
· Maintenance (₹ 139.94×1,420 hours) 1,98,714.80
· Set-up (₹ 628.97×60 set-ups) 37,738.20
· Quality control (₹ 242.86×18 inspections) 4,371.48 3,84,364.80
Total Cost 33,14,864.80
No. of units 7,600
Cost per units 436.17
Solution 23:
Working Notes:
(i) Total support cost:
(₹)
Ordering 7,80,000
Delivery 12,60,000

(ii) Cost for each activity cost driver:

Activity (1) Total cost(₹) Cost allocation base Cost driver rate (4) =
(2) (3) [(2)÷(3)]
Ordering 7,80,000 1,560 purchase ₹ 500 per purchase order
orders
Shelf-stocking 8,64,000 8,640 hours ₹ 100 per stocking hour
Customer support 15,36,000 15,36,000 items sold ₹ 1 per item sold
Statement of Total cost and Operating income

Soft Drinks (₹) Fresh Produce Packaged Total
(₹) Food (₹)
(₹)
Revenues: (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Cost & Goods sold 30,00,000 75,00,000 45,00,000 1,50,00,000
Ordering cost* (360:840:360) 1,80,000 4,20,000 1,80,000 7,80,000
Delivery cost* (300:2190:660) 1,20,000 8,76,000 2,64,000 12,60,000
(540:5400:2700)
(1,26,000:11,04,000:3,06,000)
Total cost: (B) 35,40,000 1,04,40,000 55,20,000 1,95,00,000
Operating income C:{(A)- (B)} 4,27,500 63,000 5,29,500 10,20,000
* Refer to working note (ii)
Solution 24:
(a) Computation showing Rates for each Activity
Activity Activity Cost Activity driver Activity Activity
(₹) Capacity Rate
(A) (B) (A/B)
Marketing Expenses 2,25,000 Number of Customer 7,50,000 0.30
Contacts
Website Maintenance 1,50,000 Number of Customer Online 6,00,000 0.25
Expenses Orders
Credit Card Processing Fees 1,35,000 Number of Credit card 2,70,000 0.50
Transactions
Cleaning Equipment Cost 3,15,000 Number of Square Feet 10,500 30.00
Inspecting and Testing Cost 2,62,500 Number of Tests 52,500 5.00
Setting up machine's Cost 4,50,000 Number of set-ups 900 500.00
Activity based Cost for each Department

Activity Premium Hall Recliner Hall 7D Hall (₹) Cafeteria (₹)
(₹) (₹)
Marketing Expenses 78,750 90,000 45,000 11,250
(2,62,500 x 0.3) (3,00,000 x 0.3) (1,50,000 x 0.3) (37,500 x 0.3)
Website Maintenance 52,500 61,875 30,000 5,625
Expenses (2,10,000 x (2,47,500 x (1,20,000 x (22,500 x 0.25)
0.25) 0.25) 0.25)
Credit Card Processing Fees 37,500 45,000 30,000 22,500
(75,000 x 0.5) (90,000 x 0.5) (60,000 x 0.5) (45,000 x 0.5)
Cleaning Equipment Cost 90,000 1,35,000 67,500 22,500
(3,000 x 30) (4,500 x 30) (2,250 x 30) (750 x 30)

Inspecting and Testing Cost 60,000 90,000 75,000 37,500
(12,000 x 5) (18,000 x 5) (15,000 x 5) (7,500 x 5)
Setting up machine's cost 1,12,500 2,25,000 75,000 37,500
(225 x 500) (450 x 500) (150 x 500) (75 x 500)
Total 4,31,250 6,46,875 3,22,500 1,36,875
(i) Statement of Operating Income and Operating Income percentage for each Department
Particulars Premium Recliner 7D Hall (₹) Cafeteria (₹)
Hall Hall
(₹) (₹)
Revenues (Given) (A) 11,55,000 18,75,000 9,30,000 5,25,000
Cost of Goods Sold (given) (B1) - - - 4,51,125
Digital Media Cost (given) (B2) 6,19,800 9,46,875 4,02,900 -
Activity Based Cost (as per Workings) 4,31,250 6,46,875 3,22,500 1,36,875
(B3)
Operating Cost (B) (B1+ B2 + B3) 10,51,050 15,93,750 7,25,400 5,88,000
Operating Income/(Loss) (C = A – B) 1,03,950 2,81,250 2,04,600 (63,000)
Percentage of profit/(loss) on sales 9% 15% 22% (12%)
(ii) Contention of Supervisor is valid as operating income of Cafeteria is negative i.e. (₹ 63,000) or percentage
of profit/loss is (12%).
Solution 25:
(i) Total Overhead = ₹ (2,52,000 + 80,000 + 60,000 + 40,000 + 10,368) = ₹ 4,42,368
Total machine hours = 1,440 × 4 + 1,200 × 3 + 960 × 2 + 1,008 × 1
= 5,760 + 3,600 + 1,920 + 1,008 = 12,288 M. Hrs.
Overhead recovery rate / M.H. = ₹ 4,42,368 / 12,288 M.Hrs. = ₹ 36
Cost Statement when overheads are absorbed on machine hours rate basis –
Product A B C D
Output in units 1,440 1,200 960 1,008
(₹) (₹) (₹) (₹)
Cost per unit:
Direct material 84 90 80 96
Direct labour 20 18 14 16
Overhead (@ ₹ 36) 144 108 72 36
(4 × ₹ 36) (3 × ₹ 36) (2 × ₹ 36) (1 × ₹ 36)
Total cost per unit 248 216 166 148
Total cost 3,57,120 2,59,200 1,59,360 1,49,184
(ii)
(1) Machine department costs of ₹ 2,52,000 to be apportioned to set-up cost, store receiving and inspection in
4 : 3 : 2 i.e. ₹ 1,12,000, ₹ 84,000 and ₹ 56,000 respectively.
(2) One production run = 48 units. Hence, the number of production runs of different products:
A= 1440 / 48 = 30 , B = 1200/48 = 25 , C= 960/ 48 =20 , D = 1,008/48 = 21 or total 96 runs.
(3) One batch order is of 24 units. So the number of batches of different products:
A= 1440 / 24 = 60 , B = 1200/24 = 50 , C= 960/ 24 =40 , D = 1,008/24 = 42 or total 192 batches.
(4) Computation of Cost driver rates

Activity Activity Cost (₹) Cost driver Quantity Cost driver rate
Set-up 80,000 + 1,12,000 No. of production run 96 ₹ 2,000 per
= 1,92,000 production run
Store- receiving 60,000 + 84,000 Requisition raised 50 × 4 = 200 ₹ 720 per requisition
= 1,44,000

Inspection 40,000 + 56,000 No. of production run 96 ₹ 1,000 per
= 96,000 production run
Material handling 10,368 Orders executed (No. 192 ₹ 54 per batch
of batches)
(5) Cost statement under Activity Based Costing:

Product A B C D
Output in units 1,440 1,200 960 1,008
(₹) (₹) (₹) (₹)
Material 1,440 × 84 1,200 × 90 960 × 80 1,008 × 96
= 1,20,960 = 1,08,000 = 76,800 = 96,768
Labour 1,440 × 20 1,200 × 18 960 × 14 1,008 × 16
= 28,800 = 21,600 = 13,440 = 16,128
1,49,760 1,29,600 90,240 1,12,896
Overhead cost:
Set up 2,000 × 30 2,000 × 25 2,000 × 20 2,000 × 21
= 60,000 = 50,000 = 40,000 = 42,000
Store receiving 720 × 50 720 × 50 720 × 50 720 × 50
= 36,000 = 36,000 = 36,000 = 36,000
Inspection 1,000 × 30 1,000 × 25 1,000 × 20 1,000 × 21
= 30,000 = 25,000 = 20,000 = 21,000
Material handling 54 × 60 54 × 50 54 × 40 54 × 42
= 3,240 = 2,700 = 2,160 = 2,268
Total overhead cost 1,29,240 1,13,700 98,160 1,01,268
Total cost 2,79,000 2,43,300 1,88,400 2,14,164
Total cost per unit 193.75 202.75 196.25 212.46
(Total cost / Output
Solution 26:
Traditional Absorption Costing
X Y Z Total
(a) Quantity (units) 1,200 1,440 1,968 4608
(b) Direct labour per unit (₹) 18 20 30 -
(c) Direct labour hours (a × b)/₹ 4 5,400 7,200 14,760 27,360

= Budgeted overheads / Budgeted labour hours
= (₹ 50,000 + ₹ 40,000 + ₹ 28,240 + ₹ 1,28,000) / 27,360 hours
= ₹ 2,46,240 / 27,360 hours
Unit Costs :
X Y Z
Direct Costs:
- Direct Labour (₹) 18.00 20.00 30.00
- Direct Material (₹) 90.00 84.00 176.00
Production Overhead: (₹) 40.50 45.00 67.50
Total cost per unit (₹) 148.50 149.00 273.50
2. Calculation of Cost-Driver level under Activity Based Costing

X Y Z Total
Quantity (units) 1,200 1,440 1,968 -
No. of orders (to be rounded off for 48 58 79 185
fraction) (1200 / 25) (1440 / 25) (1968 / 25)
No. of production runs 25 30 41 96

(1200 / 48) (1440 / 48) (1968 / 48)
No. of Inspections (done for each 25 30 41 96
production run)
Maintenance hours 1,600 1,600 3,200 6400
Calculation of Cost-Driver rate
Activity Budgeted Cost Cost-driver Cost Driver rate (₹)
(₹) (a) level(b) (c) = (a) / (b)
Material procurement Set-up 50,000 185 270.27
Quality control 40,000 96 416.67
Maintenance 28,240 96 294.17
1,28,000 6,400 20.00
Calculation of total cost of products using Activity Based Costing

Particulars Product
X (₹) Y (₹) Z (₹)
Direct Labour 18.00 20.00 30.00
Direct Material 90.00 84.00 176.00
Prime Cost per unit (A) 108.00 104.00 206.00
Material procurement 10.81 10.89 10.85
[(48 x [(58 x [(79 x 270.27)/1968]
270.27)/1200] 270.27)/1440]
Set-up 8.68 8.68 8.68
[(25 x [(30 x 416.67)/ [(41 x 416.67)/ 1968]
416.67)/1200] 1440]
Quality control 6.13 6.13 6.13
[(25 x [(30 x 294.17)/ [(41 x 294.17)/ 1968]
294.17)/1200] 1440]
Maintenance 26.67 22.22 32.52
[(1,600 x [(1,600 x 20)/ [(3,200 x 20)/ 1968]
20)/1200] 1440]
Overhead Cost per unit (B) 52.29 47.92 58.18
Total Cost per unit (A + B) 160.29 151.92 264.18
Note: Question may also be solved assuming no. of orders for material procurement to be 25 for each product.
Solution 27:
(i) Calculation Cost-Driver’s rate
Activity Overhead cost (₹) Cost-driver level Cost driver rate (₹)
(A) (B) (C) = (A)/(B)
Ordering 64,000 34 + 32 + 14 800
= 80 no. of purchase
orders
Delivery 1,58,200 110 + 64 + 52 700
= 226 no. of deliveries
Shelf stocking 87,560 110 + 160 + 170 199
= 440 shelf stocking
hours
(ii) Calculation of total cost of products using Activity Based Costing

Particulars Fruit Juices
Apple (₹) Orange (₹) Mixed Fruit (₹)
Material cost 80,000 90,000 1,00,000
(10,000 x ₹ 8) (15,000 x ₹ 6) (20,000 x ₹ 5)
Direct labour cost 50,000 60,000 60,000
(10,000 x ₹ 5) (15,000 x ₹ 4) (20,000 x ₹ 3)
Prime Cost (A) 1,30,000 1,50,000 1,60,000

Ordering cost 27,200 25,600 11,200
(800 x 34) (800 x 32) (800 x 14)
Delivery cost 77,000 44,800 36,400
(700 x 110) (700 x 64) (700 x 52)
Shelf stocking cost 21,890 31,840 33,830
(199 x 110) (199 x 160) (199 x 170)
Overhead Cost (B) 1,26,090 1,02,240 81,430
Total Cost (A + B) 2,56,090 2,52,240 2,41,430
Solution 28:
Working note:
Computation of revenues (at listed price), discount, cost of goods sold and customer level operating activities
costs:
Customers
Particular A B C D E
Cases sold: (a) 9,360 14,200 62,000 38,000 9,800
Revenues (at listed price) (₹): (b) 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
{(a) × ₹ 54)}
Discount (₹): (c) {(a) × Discount - 8,520 3,10,000 1,44,400 52,920
per case} (14,200 (62,000 (38,000 (9,800
cases × cases × cases × cases ×
₹ 0.6) ₹ 5) ₹ 3.80) ₹ 5.40)
Cost of goods sold (₹): (d) 4,21,200 6,39,000 27,90,000 17,10,000 4,41000
{(a) × ₹ 45}
Order taking costs (₹): (No. of 6,000 10,000 12,000 10,000 12,000
purchase × ₹ 200)
Customer visits costs 1,200 1,800 3,600 1,200 1,800
(₹) (No. of customer visits × ₹
300)
Delivery vehicles travel costs (₹) 3,200 2,880 4,800 6,400 9,600
(Kms travelled by delivery
vehicles × ₹ 4 per km.)
Product handling costs (₹) 18,720 28,400 1,24,000 76,000 19,600
{(a) ×₹ 2}
Cost of expediting deliveries (₹) - - - - 200
{No. of expedited deliveries
× ₹ 100}
Total cost of customer level 29,120 43,080 1,44,400 93,600 43,200
operating activities (₹)
(i) Computation of Customer level operating income

Customers
Particular A (₹) B (₹) C (₹) D (₹) E (₹)
Revenues (At list price) 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
(Refer to working note)
Less: Discount - 8,520 3,10,000 1,44,400 52,920
Revenue 5,05,440 7,58,280 30,38,000 19,07,600 4,76,280
(At actual price)
Less: Cost of goods sold 4,21,200 6,39,000 27,90,000 17,10,000 4,41000
Gross margin 84,240 1,19280 2,48,000 1,97,600 35,280
Less: Customer level operating 29,120 43,080 1,44,400 93,600 43,200
activities costs

Customer level operating income 55,120 76,200 1,03,600 1,04,000 (7,920)
(ii) Comments
Customer D in comparison with Customer C: Operating income of Customer D is more than of Customer C,
despite having only 61.29% (38,000 units) of the units volume sold in comparison to Customer C (62,000
units). Customer C receives a higher percent of discount i.e. 9.26% (₹ 5) while Customer D receive a discount
of 7.04% (₹ 3.80). Though the gross margin of customer C (₹ 2,48,000) is more than Customer D (₹ 1,97,600)
but total cost of customer level operating activities of C (₹ 1,44,400) is more in comparison to
Customer D (₹ 93,600). As a result, operating income is more in case of Customer D.
Customer E in comparison with Customer A: Customer E is not profitable while Customer A is profitable.
Customer E receives a discount of 10% ( ₹ 5.4) while Customer A doesn’t receive any discount. Sales Volume
of Customer A and E is almost same. However, total cost of customer level operating activities of E is far more
( ₹ 43,200) in comparison to Customer A (₹ 29,120). This has resulted in occurrence of loss in case of
Customer E.
Solution 29:
Working notes:
1. Total support cost:
(₹)
Ordering 7,80,000
Delivery 12,60,000
2. Percentage of support cost to cost of goods sold (COGS)

𝑇𝑜𝑡𝑎𝑙 𝑆𝑢𝑝𝑝𝑜𝑟𝑡 𝐶𝑜𝑠𝑡
= 100
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑
x
₹45,00,000
= ₹1,50,00,000
x 100 = 30%
3. Cost for each activity cost driver:

Activity (1) Total cost Cost allocation base Cost driver rate (4) =
(₹) (3) [(2) ÷ (3)]
(2)
Ordering 7,80,000 1,560 purchase ₹ 500 per purchase
orders order
Customer 15,36,000 15,36,000 items sold ₹ 1 per item sold
support
(i) Statement of Operating income and Operating income as a percentage of revenues for each product line
(When support costs are allocated to product lines on the basis of cost of goods sold of each product)
Soft Drinks (₹) Fresh Produce Packaged Total (₹)
(₹) Foods (₹)
Revenues: (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Cost of Goods sold (COGS): (B) 30,00,000 75,00,000 45,00,000 1,50,00,000
Support cost (30% of COGS): 9,00,000 22,50,000 13,50,000 45,00,000
(C)
Total cost: (D) = {(B) + (C)} 39,00,000 97,50,000 58,50,000 1,95,00,000
Operating income: (E) 67,500 7,53,000 1,99,500 10,20,000

= {(A)-(D)}
Operating income as a 1.70% 7.17% 3.30% 4.97%
percentage of revenues: (F)=
{(E)/(A)× 100}
(ii) Statement of Operating income and Operating income as a percentage of revenues for each product line
(When support costs are allocated to product lines using an activity -based costing system)
Soft drinks Fresh Produce Packaged Total
(₹) (₹) Food (₹) (₹)
Revenues: (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Cost & Goods sold 30,00,000 75,00,000 45,00,000 1,50,00,000
Ordering cost* (360:840:360) 1,80,000 4,20,000 1,80,000 7,80,000
Delivery cost* 1,20,000 8,76,000 2,64,000 12,60,000
(300:2,190:660)
(540:5,400:2,700)
(1,26,000:11,04,00
0:3,06,000)
Total cost: (B) 35,40,000 1,04,40,000 55,20,000 1,95,00,000
Operating income: (C) = {(A)- 4,27,500 63,000 5,29,500 10,20,000
(B)}
revenues: (D) = {(C)/(A) ×
100}
Solution 31:
(i) PCP Limited’s
Statement of operating income and gross margin percentage for each of its supermarket segments
Particulars Supermarket A Supermarket B Total
Revenues: (₹) 11,21,67,000 9,52,87,500 20,74,54,500
(660 × ₹ 1,69,950) (1,650 × ₹ 57,750)
Less: Cost of goods sold: (₹) 10,89,00,000 9,07,50,000 19,96,50,000
(660 × ₹ 1,65,000) (1650 × RS 55,000)
Gross Margin: (₹) 32,67,000 45,37,500 78,04,500
Less: Other operating costs: (₹) 16,55,995
Operating income: (₹) 61,48,505
Gross Margin 2.91% 4.76 % 3.76%
Operating income % 2.96%
(ii) Operating Income Statement of each distribution channel in April (Using the Activity based Costing
information)
Supermarket A Supermarket B
Gross margin (₹) : (A) 32,67,000 45,37,500
(Refer to (i) part of the answer)
Operating cost (₹): (B) (Refer to working note) 6,55,600 10,00,395
Operating income (₹): (A–B) 26,11,400 35,37,105
Operating income (in %) (Operating 2.33 3.71
income/Revenue) ×100
Working note:
Computation of rate per unit of the cost allocation base for each of the five activity areas for the month of
April
(₹)

Store delivery 100 per delivery
[₹ 3,90,500/ (1,100 + 2,805 store deliveries)]
Cartons dispatched 1 per carton dispatch
[₹ 4,15,250/ {(250×1,100) +( 50×2,805)} carton dispatches]
Shelf-stocking at customer store (₹) 6 per hour
[₹ 64,845/ {(6×1,100) + (1.5×2,805)} hours]
Line item ordering 10 per line item order
[₹ 3,45,400/ {(14×770) + (12×1,980)} line items]
Customer purchase order processing [₹ 4,40,000/ (770 + 160 per order
1,980 orders)]
Computation of operating cost of each distribution channel:

Supermarket A (₹) Supermarket B (₹)
Store delivery 1,10,000 2,80,500
(₹ 100 × 1,100 deliveries) (₹ 100 × 2,805 deliveries)
Cartons dispatched 2,75,000 1,40,250
(₹ 1× 250 cartons × 1,100 (₹ 1 × 50 cartons × 2,805
deliveries) deliveries)
Shelf stocking 39,600 25,245
(₹ 6 × 1,100 deliveries × 6 Av. (₹ 6 × 2,805 deliveries × 1.5
hrs.) Av. hrs)
Line item ordering 1,07,800 2,37,600
(₹ 10 × 14 line item x 770 (₹ 10 × 12 line item x 1,980
orders) orders)
Customer purchase 1,23,200 3,16,800
order processing (₹ 160 × 770 orders) (₹ 160 × 1,980 orders)
Operating cost 6,55,600 10,00,395
Solution 32:
(i) (a) Statement of Operating Income and Operating Income as a percentage of revenues for each product
line. (When support costs are allocated to product lines on the basis of cost of goods sold for each product).
Drug A (₹) Drug B (₹) Drug C (₹) Total (₹)
Revenues: (A) 74,50,000 1,11,75,000 1,86,25,000 3,72,50,000
Cost of goods sold 41,44,500 68,16,750 1,20,63,750 2,30,25,000
(COGS) (B):
Support cost (40% of 16,57,800 27,26,700 48,25,500 92,10,000
COGS) (C):
Total Cost (D) – {(B) + 58,02,300 95,43,450 1,68,89,250 3,22,35,000
(C)}
Operating income: E = 16,47,700 16,31,550 17,35,750 50,15,000
{(A) – (D)}
Operating Income as 22.12% 14.60% 9.32% 13.46%
a % of revenues: (E/A)
x 100)
Working Notes:
1. Total Support cost
₹
Drug License Fee 5,00,000
Ordering 8,30,000
Delivery 18,20,000
Customer Support 28,20,000
2. Percentage of support cost to cost of goods sold (COGS)
𝑇𝑜𝑡𝑎𝑙 𝑠𝑢𝑝𝑝𝑜𝑟𝑡 𝑐𝑜𝑠𝑡
= 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 x 100

= ₹ 92,10,000 x 100 = 40%
₹ 2,30,25,000
3. Cost of each activity cost driver:

Activity (1) Total cost (₹) (2) Cost allocation base Cost driver rate (4) = [(2) ÷
(3) (3)]
Ordering 8,30,000 2,000 purchase orders ₹ 415 per purchase order
Customer 28,20,000 4,70,000 units sold ₹ 6 per unit sold
support
(b) Statement of operating Income and operating income as a percentage of revenues for each product line
(When support costs are allocated to product lines using an activity-based costing system)
Revenues: (A) 74,50,000 1,11,75,000 1,86,25,000 3,72,50,000
Cost & Goods Sold 41,44,500 68,16,750 1,20,63,750 2,30,25,000
Drug License Fee 1,00,000 1,50,000 2,50,000 5,00,000
Ordering Cost* 2,32,400 3,36,150 2,61,450 8,30,000
(560:810:630)
Delivery Cost* 6,17,500 6,50,000 5,52,500 18,20,000
(950:1000:850)
Shelf stocking cost* 6,48,000 9,00,000 16,92,000 32,40,000
(1,75,200 : 1,50,300 :
1,44,500)
Total Cost: (B) 67,93,600 97,54,700 1,56,86,700 3,22,35,000
Operating Income C: {(A) – 6,56,400 14,20,300 29,38,300 50,15,000
(B)}
revenues
(ii) Comparison on the basis of operating income as per the percentage (%) of revenue:
(a) When support costs are allocated to product lines on the basis of cost of goods sold of each product.
Operating 22.12% 14.60% 9.32% 13.46%
Income as %
of revenue
On comparing the operating income as a % of revenue of each product, Drug A is the most profitable product
line, though is least but with highest units sold.
(b) When support costs are allocated to product lines using an activity-based costing system.
Operating 8.81% 12.71% 15.78% 13.46%
Income as a %
of revenues
On comparing the operating income as a % of revenue of each product, Drug C is the most profitable product
line, though its unit sold is least but with highest revenue.
Solution 33:
Working note:
Computation of revenues (at listed price), discount, and cost of goods sold and customer level operating
activities costs:
Particulars Customers
Aey Bee Cee Dee Eey
Cases sold: (a) 9,360 14,200 62,000 38,000 9,800

Revenues (at listed price) (₹): 6,06,528 9,20,160 40,17,600 24,62,400 6,35,040
(b) {(a) x ₹ 64.80}
Discount (₹): (c) {(a) x - 10,224 3,72,000 1,73,280 63,504
Discount per case} (14,200 (62,000 (38,000 (9,800
cases x ₹ cases x ₹ cases x ₹ cases x ₹
0.72) 6) 4.56) 6.48)
Cost of goods sold (₹): (d) {(a) 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
x ₹ 54}
Order taking costs (₹): 7,200 12,000 14,400 12,000 14,400
(No. of purchase x ₹ 240)
Customer visits costs (₹) (No. 1,440 2,160 4,320 1,440 2,160
of customer visits x ₹ 360)
Delivery vehicles travel costs 3,840 3,456 5,760 7,680 11,520
(₹) (Km. travelled by delivery
vehicles x 4.80 per km.)
Product handling costs (₹) 22,464 34,080 1,48,800 91,200 23,520
{(a) x ₹ 2.40}
Cost of expediting deliveries - - - - 240
(₹)
{No. of expedited deliveries x ₹
120}
Total cost of customer level 34,944 51,696 1,73,280 1,12,320 51,840
operating activities (₹)
(i) Computation of Customer level Operating Income

Customers
Particulars Aey (₹) Bee (₹) Cee (₹) Dee (₹) Eey (₹)
Revenues (At list price) 6,06,528 9,20,160 40,17,600 24,62,400 6,35,040
Less: Discount - 10,224 3,72,000 1,73,280 63,504
Revenue 6,06,528 9,09,936 36,45,600 22,89,120 5,71,536
(At actual price)
Less: Cost of goods sold (Refer to 5,05,440 7,66,800 33,48,000 20,52,000 5,29,200
working note)
Gross margin 1,01,088 1,43,136 2,97,600 2,37,120 42,336
Less: Customer level operating 34,944 51,696 1,73,280 1,12,320 51,840
activities costs
Customer level operating income 66,144 91,440 1,24,320 1,24,800 (9,504)
(ii) Comments
Customer Dee in comparison with Customer Cee: Operating income of Customer Dee is more than that of
Customer Cee, despite having only 61.29% (38,000 units) of the units volume sold in comparison to Customer
Cee (62,000 units). Customer Cee receives a higher percent of discount i.e. 9.26% (₹ 6) while Customer Dee
receives a discount of 7.04% (₹ 4.56). Though the gross margin of customer Cee (₹ 2,97,600) is more than that
of Customer Dee (₹ 2,37,120) but total cost of customer level operating activities of Cee (₹ 1,73,280 ) is more
in comparison to Customer Dee (₹ 1,12,320). As a result, operating income is more in case of Customer Dee.
Customer Eey in comparison with Customer Aey: Customer Eey is not profitable while Customer Aey is
profitable. Customer Eey receives a discount of 10% (₹ 6.48) while Customer Aey doesn’t receive any discount.
Sales Volume of Customer Aey and Eey is almost same. However, total cost of customer level operating
activities of Eey is far more (₹ 51,840) in comparison to Customer Aey (₹ 34,944). This has resulted in
occurrence of loss in case of Customer Eey.
Solution 34:
(i) Profit Statement using Absorption costing method:

X Y Z
A. Sales Quantity 1,00,000 80,000 60,000 2,40,000
B. Selling price per unit 45 90 70
(₹)
C. Sales value (₹) [AxB] 45,00,000 72,00,000 42,00,000 1,59,00,000
D. Direct Cost per unit 25 45 50
(₹)
E Direct Cost (₹) [A x 25,00,000 36,00,000 30,00,000 91,00,000
D]
F. Overheads:
(i) Machine department 12,00,000 12,80,000 12,00,000 36,80,000
(₹)
(ii) (Working Note-1) 15,00,000 8,00,000 4,50,000 27,50,000
Assembly
Department (₹)
(Working Note-1)
G. Total Cost (₹) [E+F] 52,00,000 56,80,000 46,50,000 1,55,30,000
H. Profit (C-G) (7,00,000) 15,20,000 (4,50,000) 3,70,000
(ii) Profit Statement using Activity Based Costing (ABC) method:

X Y Z
A. Sales Quantity 1,00,000 80,000 60,000
B. Selling Price per 45 90 70
unit (₹)
C. Sales Value (₹) [A x 45,00,000 72,00,000 42,00,000 1,59,00,000
B]
D. Direct Cost per unit 25 45 50
(₹)
E. Direct Cost (₹) [A x 25,00,000 36,00,000 30,00,000 91,00,000
D]
F. Overheads: (Refer
(i) Working Note-3) 10,50,000 11,20,000 10,50,000 32,20,000
(ii) Machining Services 12,00,000 6,40,000 3,60,000 22,00,000
(iii) (₹) 2,25,000 1,50,000 75,000 4,50,000
(iv) Assembly Services 1,10,000 1,20,000 1,30,000 3,60,000
(v) (₹) 75,000 87,500 37,500 2,00,000
Set-up Costs (₹)
Order Processing
(₹)
Purchasing (₹)
G. Total Cost (₹) [E+F] 51,60,000 57,17,500 46,52,500 1,55,30,000
H. Profit (₹) (C-G) (6,60,000) 14,82,500 (4,52,500) 3,70,000
Working Notes:
(1)
Product Total
X Y Z
A. Production (Units) 1,00,000 80,000 60,000
B. Machine hours per 3 4 5
unit
C. Total Machine hours 3,00,000 3,20,000 3,00,000 9,20,000
[A x B]
D. Rate per hour (₹) 4 4 4

E. Machine Dept. Cost [C 12,00,000 12,80,000 12,00,000 36,80,000
x D]
F. Labour Hours per unit 6 4 3
G. Total Labour Hours [A 6,00,000 3,20,000 1,80,000 11,00,000
x F]
H. Rate per Hour (₹) 2.5 2.5 2.5
I. Assembly Dept. Cost 15,00,000 8,00,000 4,50,000 27,50,000
[G x H]
Machine Hour rate = ₹ 36,80,000/9,20,000 hours = ₹ 4
Labour Hour rate = ₹ 27,50,000/11,00,000 hours = ₹ 2.5
(1) Calculation of Cost Driver rate

Cost Pool Amount (₹) Cost Driver Quantity Driver Rate(₹)
Machining 32,20,000 Machine Hours 9,20,000 hours 3.50
Services
Assembly 22,00,000 Direct Labour 11,00,000 hours 2.00
Services Hours
Set-up Costs 4,50,000 Matching 9,000 set-ups 50.00

Set-ups
Order 3,60,000 Customer 7,200 orders 50.00
processing Orders
Purchasing 2,00,000 Purchase 800 orders 250.00
Orders
(2) Calculation of Activity-wise Cost

Product Total
X Y Z
A. Machining hours (refer 3,00,000 3,20,000 3,00,000 9,20,000
working note-1)
B. Machine hour rate (₹) 3.5 3.5 3.5
(Refer Working Note-2)
C. Machining Services Cost 10,50,000 11,20,000 10,50,000 32,20,000
(₹) [A x B]
D. Labour Hours (Refer 6,00,000 3,20,000 1,80,000 11,00,000
Working Note- 1)
E. Labour Hour rate (₹) 2 2 2
(Refer Working Note-2)
F. Assembly services Cost 12,00,000 6,40,000 3,60,000 22,00,000
(₹) [D x E]
G. Machine set-ups 4,500 3,000 1,500 9,000
H. Rate per set-up (₹) (Refer 50 50 50
Working Note-2)
I. Set-up Cost (₹) [G x H] 2,25,000 1,50,000 75,000 4,50,000
J. Customer Orders 2,200 2,400 2,600 7,200
K. Rate per order (₹) (Refer 50 50 50
Working Note- 2)
L. Order Processing Cost (₹) 1,10,000 1,20,000 1,30,000 3,60,000
[J x K]
M. Purchase Orders 300 350 150 800
N. Rate per order (₹) (Refer 250 250 250
Working Note-2)
O. Purchasing Cost (₹) [M x 75,000 87,500 37,500 2,00,000
N]

04 Activity Based Costing Solutions

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ACTIVITY BASED COSTING - SOLUTIONS

2. Activity Based Costing

Total unit costs 25.09 28.98 30.16

CA Nitin Guru | www.edu91.org 4.1

(ii) Computation of cost of unused capacity for each activity:

𝑩𝒖𝒅𝒈𝒆𝒕𝒆𝒅 𝒐𝒗𝒆𝒓𝒉𝒆𝒂𝒅𝒔 ₹ 𝟏𝟐,𝟒𝟐,𝟓𝟎𝟎

(ii) Estimation of Cost-Driver rate

Particulars Equipment Y (₹) Equipment Z (₹)

CA Nitin Guru | www.edu91.org 4.2

Per unit cost

CA Nitin Guru | www.edu91.org 4.3

(i) Computation of Customer level operating income

CA Nitin Guru | www.edu91.org 4.4

(b) Statement of cost driver rate

Statement of cost apportionment

Statement to find cost difference

O/H absorption rate = 51,79,300/3,01,39,000 x 100

(ii) Statement for cost driver rate

CA Nitin Guru | www.edu91.org 4.5

(iii) Statement of Total Cost and Cost per unit

𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑂/𝐻 15,00,000

(ii) Statement of Cost driver rate

Statement of cost allocation

Statement showing manufacturing cost

CA Nitin Guru | www.edu91.org 4.6

(iii) Calculating Cost distortion

Statement of cost allocation

Statement for distribution of O/H

CA Nitin Guru | www.edu91.org 4.7

(ii) Statement to calculate operating income using ABC method.

Statement to calculate cost driver rate

Statement to calculate unused capacity

CA Nitin Guru | www.edu91.org 4.8

Machine set Customer order Customer complaint

(i) Computation of Overhead cost per unit:

(ii) Determination of Selling price per unit

𝑻𝒐𝒕𝒂𝒍 𝒐𝒗𝒆𝒓𝒉𝒆𝒂𝒅 𝒄𝒐𝒔𝒕 ₹ 𝟓𝟕,𝟎𝟎𝟎

CA Nitin Guru | www.edu91.org 4.9

(iii) Statement showing differences (in ₹)

CA Nitin Guru | www.edu91.org 4.10

Activity based cost Customers

Customer cost (A) 12,150 10,500 7,840

CA Nitin Guru | www.edu91.org 4.11

CA Nitin Guru | www.edu91.org 4.12

(ii) Statement Showing “Cost per unit - Activity Based Costing”

Total Machine Hours-

Cost Driver Rates-

CA Nitin Guru | www.edu91.org 4.13

2. Percentage of support cost to cost of goods sold (COGS):

3. Cost for each activity cost driver:

CA Nitin Guru | www.edu91.org 4.14

(ii) Activity Based Costing

CA Nitin Guru | www.edu91.org 4.15

Forklifting rate per gram = ₹ 58,000 ÷ 9,84,000 grams

Unit Costs under ABC:

CA Nitin Guru | www.edu91.org 4.16

(ii) Profit Statement using Activity based costing (ABC) method:

Machine hour rate = ₹ 73,60,000/9,20,000hours = ₹ 8

2. Calculation of cost driver rate: