Prob No.

1
ABC , distribution.(w. Bruns, adapted) Shaw Wallace makes two wines: a regular wine & a premium
wine, Shaw Wallace distributes the regular wine and the premium wine through different distribution
channels. It distributes 2,40,000 cases of regular wine through 10 general distributors and 1,60,000
cases of the premium wine through 30 specialty distributors. Shaw Wallace incurs Rs. 42,60,000 in
distribution costs. Under its existing costing system, Shaw Wallace allocates distribution costs to
products on the basis of cases shipped.
To understand better the demands on its resources in the distribution area, Shaw Wallace identifies
three activities and related activity costs.
a. Promotional costs shaw Wallace estimates it incurs Rs. 16,000 per distributor.
b. Order handling costs shaw Wallace estimates costs of Rs.600 pertaining to each order. Shaw
Wallace records show that distributors of regular wine place an average of 10 orders per year,
whereas distributors of premium wine place an average of 20 orders per year.
c. Delivery Costs Rs. 8 per case.
Required
1. Using Shaw Wallace existing costing system, calculate the total distribution costs and
distribution cost per case for the regular wine and the premium wine.
2. Using Shaw Wallace activity-based costing system, calculate the total distribution costs and
distribution cost per case for the regular wine and the premium wine.
3. Explain the cost differences and the accuracy of the product costs calculated using the existing
costing system and the ABC system. How might shaw Wallace Management use the information
from the ABC system to manage its business better?



Prob No.2
ABC, cost hierarchy, service. (CMA,adapted) Apollo Test Laboratories does heat testing (HT) and stress
testing (ST) on materials. Under its current costing system. Apollo aggregates all operating costs of RS.
1,20,00,000 into a single overhead cost pool. Apollo calculates a rate per test-hour of Rs. 150
(Rs.1,20,00,000/80,000 total test hours). HT uses 50,000 test-hours, and St uses 30,000 test-hours.
Apollos controller believes that there is enough variation in test procedures and cost structures to
establish separate costing and billing rates for HT and ST. The market for test services is becoming
competitive. Without this information, any miscasting and mispricing of its services could cause Apollo
to lose business. Vikas divides Apollos costs into four activity-cost categories.
a. Direct-labour costs, Rs.24,00,000. These costs can be directly traced to HT, Rs.18,00,000 and ST
Rs.6,00,000.
b. Equipment-related costs (rent, maintenance ,energy, and so on), Rs. 40,00,000. These costs are
allocated to HT and ST on the basis of test-hours.
c. Setup costs, Rs. 35,00,000. These costs are allocated to HT and ST on the basis of the number of
setup-hours required. HT requires 13,500 setup-hours, and ST required 4,000 setup-hours.
d. Costs of designing tests, Rs.21,00,000. These costs are allocated to HT and ST on the basis of the
time required to design the tests.HT requires 2,800 hours, and ST requires 1,400 hours.
Required
1. Calculate the cost per test-hour for HT and ST. Explian briefly the reasons why these numbers
differ from Rs.150 per test-hour that Apollo calculated using its existing costing system.
2. Explain the accuracy of the product costs calculated using the existing costing system and the
ABC system. How might Apollos management use the cost hierarchy and ABC information to
manage its business better?


Prob No.3
Alternative allocation bases for a professional service firm. Ernst & Young (E&Y) provides tax advice
to multinational firms, E&Y charges clients for (a) direct professional time (at an hourly rate) and (b)
support services (at 30 per cent of the direct professional costs billed).The three professionals in
E&Y and their rates per professional hour are
Professional Billing rate per hour
Ajay Rs.5,000
Vijay 1,200
Vinay 800
E&Y has just prepared the May bills for two clients. The hours of professional time spent on each
client are as follows?
Hours per client LG Electronics Ltd Electrolux Ltd
Ajay 15 2
Vijay 3 8
Vinay 22 30
Total 40 40
Required
1. What amounts did E&Y bill to both for May?
2. Suppose support services were billed at Rs.500 per professional labour-hour (instead of 30 per
cent of professional labour costs). How would this change affect the amounts E&Y billed to the
two clients for May? Comment on the differences between the amounts billed in requirements
1 and 2.

Prob No.4
ABC,retail product-line profitability. Nirula decides to apply ABC analysis to three product lines:Ice
creams,Milk shakes and Ice-cream, and Food products. It identifies four activities and activity-cost
rates for each activity as
Ordering Rs.1,000 per purchase order
Delivery and receipt of merchandise Rs.800 per delivery
Shelf Stocking Rs.200 per hour
Customer support and assistance Rs.2 per item sold
The revenues, cost of Goods sold, store support costs, and activity area usage of the three product
lines are
Ice-creams Milk & Ice-cream shakes Food Products
Financial Data Rs.5,70,000 Rs.6,30,000 Rs.5,20,000
Revenues 3,80,000 4,70,000 3,50,000
Store support 1,14,000 1,41,000 1,05,000
Activity-area usage (cost-allocation base)
Ordering (purchase orders) 30 25 13
Delivery (deliveries) 98 36 28
Shelf-stocking (hours) 183 166 24
Customer support (item sold) 15,500 20,500 7900
Under its previous costing system,Nirula allocated support costs to products at the rate of 30 per cent of
cost of goods sold.
Required
1. Use the previous costing system to prepare a product-line profitability report for Nirulas
2. Use the ABC system to prepare a product-line profitability report for Nirulas
3. What new insights does the ABC system in requirement 2 provide to Nirulas managers?

Prob No.5
Activity- based budgeting. Big Bazaar (BB) is preparing its activity-based budget for January 2007.Its
current concern is with its four activities (which are also indirect-cost categories in its product
profitability reporting system):
1. Orderning-covers purchasing activities. The cost driver is number of purchase orders.
2. Delivery-covers the physical delivery and receipt of merchandise .The cost driver is number of
deliveries
3. Shelf-stocking-covers the stocking of merchandise on store shelves and the ongoing restoking
before sale. The cost drivers is hour of stocking time.
4. Customer support-covers assistance provided to customers, Including checkout and bagging.
The cost drivers is number of items sold.
Assume BB has only three product types: soft drinks, fresh produce, and packaged food. The
budgeted usage of each driver in these three product types and January 2007 budgeted cost-driver
rates are:
January 2007 Budgeted
Cost-driver Rates amount of Driver Used
2006 January 2007
Activity and Drivers Actual rate Budgeted Rate Soft Fresh Packaged
Drinks Drinks Food
Ordering (per purchase order) Rs.10,000 Rs.9,000 14 24 14
Delivery (per delivery) 8,000 8,200 12 62 19
Shelf-stocking (per hour) 2,000 2,100 16 172 94
Customer support (per item sold) 20 18 4,600 34,200 10,750
Required
1. What is the total budgeted cost for each activity in January 2007.
2. What advantages might BB gain by using an activity-based budgeting approach over, say, an
approach that allocates the cost of these activities to products as a percentage of the cost of
goods sold?

Prob No.6
Activity- based budgeting. Anderson Manufacturing, Inc, uses activity-based budgeting. Budgetary
information for selected activities for 2007 is provided below.
Activity Cost Driver Items Cost Pool (fixed cost+ cost per unit of
Cost drivers)
Machining Machine Hours Indirect Materials Rs.0 + Rs.10 per hour
Indirect labour Rs.20,000 + Rs.15 per hour
Utilities Rs.0+ Rs.5 per hour
Setups and quality assurance Production runs Indirect Material Rs.0 + Rs.1,000 per run
Indirect Labour Rs.0 + Rs.1,200 per run
Inspection Rs.80,000 + Rs.2,000 per run
Procurement Purchase orders Indirect materials Rs.0 + Rs.4 per order
Indirect labour Rs. 45,000 + Rs.0 per order
Design Material Handling Design hours Engineering Rs.75,000 + Rs. 50 per hour
Square feet of Indirect materials Rs.0 + Rs.2 per square
Feet
Material Handled
Additional Budget for 2007
Activity cost Driver Budgeted Volume
a. Machining 10,000 machine hours
b. Setups and quality assurance 40 production runs
c. Procurement 15,000 purchase orders
d. Design 100 engineering hours
e. Material handling 1,00,000 square feet
Calculate the budgeted amount for each activity in 2007.