Activity based costing

Part 2
Q.No 1 The budgeted overheads and cost driver volumes of XYZ are as follows.

Cost Pool Budgeted Cost Driver Budgeted

Overheads Volume
Material 5,80,000 No. of orders 1,100
procurement
Material handling 2,50,000 No. of movements 680
Set-up 4,15,000 No. of set ups 520
Maintenance 9,70,000 Maintenance hours 8,400
Quality control 1,76,000 No. of inspection 900
Machinery 7,20,000 No. of machine hours 24,000
The company has produced a batch of 2,600 components of AX-15, its material cost
was Rs. 1,30,000 and labor cost Rs. 2,45,000. The usage activities of the said batch
are as follows.
Material orders – 26, maintenance hours – 690, material movements – 18,
inspection – 28, set ups – 25, machine hours – 1,800
Calculate – cost driver rates that are used for tracing appropriate amount of
overheads to the said batch and ascertain the cost of batch of components using
Activity Based Costing.
Calculation of overhead rate :

Cost Pool Budgeted Cost Driver Budgeted Rate

Overheads Volume
Material 5,80,000 No. of orders 1,100 527.27
procurement
Material handling 2,50,000 No. of movements 680 367.65
Set-up 4,15,000 No. of set ups 520 798.08
Maintenance 9,70,000 Maintenance hours 8,400 115.48
Quality control 1,76,000 No. of inspection 900 195.55
Machinery 7,20,000 No. of machine hours 24,000 30
 Calculation of costs :
Particulars Calculation Cost
Material 1,30,000
 Calculation of costs :
Particulars Calculation Cost
Material 1,30,000
Labour 2,45,000
 Calculation of costs :
Particulars Calculation Cost
Material 1,30,000
Labour 2,45,000
Material procurement 26 *527.27 13,709
 Calculation of costs :
Particulars Calculation Cost
Material 1,30,000
Labour 2,45,000
Material procurement 26 *527.27 13,709
Material handling 18 * 367.65 66,177
 Calculation of costs :
Particulars Calculation Cost
Material 1,30,000
Labour 2,45,000
Material procurement 26 *527.27 13,709
Material handling 18 * 367.65 66,177
Set-up 25* 798.08 19,952
 Calculation of costs :
Particulars Calculation Cost
Material 1,30,000
Labour 2,45,000
Material procurement 26 *527.27 13,709
Material handling 18 * 367.65 66,177
Set-up 25* 798.08 19,952
Maintenance 690 * 115.48 79,681
 Calculation of costs :
Particulars Calculation Cost
Material 1,30,000
Labour 2,45,000
Material procurement 26 *527.27 13,709
Material handling 18 * 367.65 66,177
Set-up 25* 798.08 19,952
Maintenance 690 * 115.48 79,681
Quality control 28 * 195.55 5,475
 Calculation of costs :
Particulars Calculation Cost
Material 1,30,000
Labour 2,45,000
Material procurement 26 *527.27 13,709
Material handling 18 * 367.65 66,177
Set-up 25* 798.08 19,952
Maintenance 690 * 115.48 79,681
Quality control 28 * 195.55 5,475
Machinery 1800 * 30 54,000
Total 6,13,994
Q.No 3 Statusline & Company is a manufacturer of a range of white Goods. Cost
structure of its different products is as follows:
Standard Cost of the Products
(Rs. per Unit)
Particular Product-P Product-Q Product-R
Direct Materials 25.00 20.00 20.00
Direct Labour @ Rs. 5 per hour 15.00 20.00 25.00
Production Overheads* 15.00 20.00 25.00
55.00 60.00 70.00
Quantity produced (units) 10000 20000 30000

* Absorbed on the basis of Direct Labour Hours.

Statusline & Company wishes to introduce Activity Based Costing (ABC) system and
has identified four major cost pools for production overhead and their associated
cost drivers. Information on these activity cost pools and their drivers is given
below:
 
Activity cost pool Cost Driver Cost (Rs.)
Stores Receiving Purchase requisitions 1,48,000
Inspection / Quality control Number of production runs 4,47,000
Material handling & dispatch Orders executed 1,05,000
Machine set-ups Number of set-ups 6,00,000
 
Further relevant information on the three products is also given below:
 
Particular Product-P Product-Q Product-R
No. of Purchase requisitions : 300 450 500
No. of Production runs 750 1050 1200
No. of Orders executed 180 270 300
No. of set-ups 360 390 450
Required:
(i) Calculate the activity based production cost of all the three products.
(ii) Comment on the differences between the original traditionally Calculated Costs
and Activity Based Costs (ABC) you calculated.
Calculation of overhead rate :

Cost Pool Budgeted Cost Driver Budgeted Rate

Overheads Volume
Stores receiving 1,48,000 Purchases requisition 1,250 118.40
Inspection 4,47,000 Production run 3,000 149
Material handling 1,05,000 Order executed 750 140
Machine set up 6,00,000 Number of set up 1,200 500
Particulars P Q R
Material 25 * 10,000 = 20 * 20,000 = 30 * 20,000 =
2,50,000 4,00,000 6,00,000
Particulars P Q R
Material 25 * 10,000 = 20 * 20,000 = 30 * 20,000 =
2,50,000 4,00,000 6,00,000
Labour 15 * 10,000 20 * 20,000 = 25 * 30,000 =
=1,50,000 4,00,000 7,50,000
Particulars P Q R
Material 25 * 10,000 = 20 * 20,000 = 30 * 20,000 =
2,50,000 4,00,000 6,00,000
Labour 15 * 10,000 20 * 20,000 = 25 * 30,000 =
=1,50,000 4,00,000 7,50,000
Stores receiving 300 * 118.40= 450 * 118.40 = 500 * 118.40 =
35,520 53280 59,200
Particulars P Q R
Material 25 * 10,000 = 20 * 20,000 = 30 * 20,000 =
2,50,000 4,00,000 6,00,000
Labour 15 * 10,000 20 * 20,000 = 25 * 30,000 =
=1,50,000 4,00,000 7,50,000
Stores receiving 300 * 118.40= 450 * 118.40 = 500 * 118.40 =
35,520 53280 59,200
Inspection 750 * 149 = 1050 * 149 1200 * 149 =
1,11,750 =1,56,450 1,78,800
Particulars P Q R
Material 25 * 10,000 = 20 * 20,000 = 30 * 20,000 =
2,50,000 4,00,000 6,00,000
Labour 15 * 10,000 20 * 20,000 = 25 * 30,000 =
=1,50,000 4,00,000 7,50,000
Stores receiving 300 * 118.40= 450 * 118.40 = 500 * 118.40 =
35,520 53280 59,200
Inspection 750 * 149 = 1050 * 149 1200 * 149 =
1,11,750 =1,56,450 1,78,800
Material 180 * 140 = 270 * 140 = 37,800 300 * 140 =
handling 25,200 42,000
Particulars P Q R
Material 25 * 10,000 = 20 * 20,000 = 30 * 20,000 =
2,50,000 4,00,000 6,00,000
Labour 15 * 10,000 20 * 20,000 = 25 * 30,000 =
=1,50,000 4,00,000 7,50,000
Stores receiving 300 * 118.40= 450 * 118.40 = 500 * 118.40 =
35,520 53280 59,200
Inspection 750 * 149 = 1050 * 149 1200 * 149 =
1,11,750 =1,56,450 1,78,800
Material 180 * 140 = 270 * 140 = 37,800 300 * 140 =
handling 25,200 42,000
Machine set up 360 * 500 = 390 * 500 = 450 * 500 =
1,80,000 1,95,000 2,25,000
7,52,470 12,42,530 18,55,000
Particulars Traditional costing ABC costing Difference
P 55 7,52,470 / 10,000 20.24
= 75.24
Q 60 12,42,530 / 20,000 2.12
= 62.12
R 70 18,55,000 / 30,000 8.17
= 61.83

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.
Q.No 4 FOAMSTAR LTD. makes three main products using broadly the same
production methods and equipment for each. A conventional product costing
system is used at present, although an Activity Based Costing (ABC) system is being
considered. Details of the three products for a typical period are:
Hours per unit Materials Volume Labour
Machine per unit units hours hours
Product P 0.50 1.50 20 750
Product Q 1.50 1.00 12 1250
Product R 1.00 3.00 25 7000
Direct labour costs Rs. 6 per hour and production overheads are absorbed on a
machine hour basis. The rate for the period is Rs. 28 per machine hour.
Further analysis shows that the total of production overheads can be divided as
follows:
 
%
Cost relating to set ups 35
Cost relating to machinery 20
Cost relating to materials handling 15
Cost relating to inspection 30
Total production overhead 100
 The following activity volumes are associated with the product line for the period
as a whole. Total activities for the period:
Number of Number of movements Number of
set-ups of materials inspections
Product P 75 12 150
Product Q 115 21 180
Product R 480 87 670
670 120 1000
Required:
(i) Calculate the cost per unit for each product using conventional methods;
(ii)Calculate the cost per unit for each product using Activity Based Costing (ABC)
principles;
Comment on the reasons for any differences in the costs in your answers to (i) and
(ii).
 Calculation of cost using conventional methods
Particulars P Q R
Material 20 12 25
 Calculation of cost using conventional methods
Particulars P Q R
Material 20 12 25
Labour 0.5 * 6= 3 1.5 * 6 =9 1 * 6 =6
 Calculation of cost using conventional methods
Particulars P Q R
Material 20 12 25
Labour 0.5 * 6= 3 1.5 * 6 =9 1 * 6 =6
Overheads 1.5 * 28 = 42 1 * 28 = 28 3 * 28 = 84
 Calculation of cost using conventional methods
Particulars P Q R
Material 20 12 25
Labour 0.5 * 6= 3 1.5 * 6 =9 1 * 6 =6
Overheads 1.5 * 28 = 42 1 * 28 = 28 3 * 28 = 84
Total 65 49 115
Machine hours
P = 750 * 1.5 = 1,125
Q = 1,250 * 1 = 1,250
R = 7,000 * 3 = 21,000
Total 23,375

Total overheads = 23,375 * 28 = 6,54,500

% Amt
Cost relating to set ups 35 2,29,075
Cost relating to machinery 20 1,30,900
Cost relating to materials handling 15 98,175
Cost relating to inspection 30 1,96,350
Calculation of cost driver rate
Cost pool
Set up
Machinery
Material
handling
Inspection
Calculation of cost driver rate
Cost pool Amount
Set up 2,29,075
Machinery 1,30,900
Material 98,175
handling
Inspection 1,96,350
Calculation of cost driver rate
Cost pool Amount Cost driver
Set up 2,29,075 Number of
setup
Machinery 1,30,900 Machine
hours
Material 98,175 Number of
handling material
movements
Inspection 1,96,350 Number of
inspections
Calculation of cost driver rate
Cost pool Amount Cost driver Volume of
cost driver
Set up 2,29,075 Number of 670
setup
Machinery 1,30,900 Machine 23,375
hours
Material 98,175 Number of 120
handling material
movements
Inspection 1,96,350 Number of 1000
inspections
Calculation of cost driver rate
Cost pool Amount Cost driver Volume of Rate
cost driver
Set up 2,29,075 Number of 670 341.90
setup
Machinery 1,30,900 Machine 23,375 5.6
hours
Material 98,175 Number of 120 818.125
handling material
movements
Inspection 1,96,350 Number of 1000 196.35
inspections
Calculation of cost using conventional methods
Particulars P Q R
Material 20 * 750 = 15,000 12 * 1,250 = 15,000 25 * 7,000 = 1,75,000
Calculation of cost using conventional methods
Particulars P Q R
Material 20 * 750 = 15,000 12 * 1,250 = 15,000 25 * 7,000 = 1,75,000
Labour 3 * 750 = 2,250 9 * 1250 = 11,250 6 * 7,000 = 42 000
Calculation of cost using conventional methods
Particulars P Q R
Material 20 * 750 = 15,000 12 * 1,250 = 15,000 25 * 7,000 = 1,75,000
Labour 3 * 750 = 2,250 9 * 1250 = 11,250 6 * 7,000 = 42 000
Set up 341.90 * 75 341.90 * 115 341.90 * 480
= 25,642.50 = 39,318.50 = 1,64,112
Calculation of cost using conventional methods
Particulars P Q R
Material 20 * 750 = 15,000 12 * 1,250 = 15,000 25 * 7,000 = 1,75,000
Labour 3 * 750 = 2,250 9 * 1250 = 11,250 6 * 7,000 = 42 000
Set up 341.90 * 75 341.90 * 115 341.90 * 480
= 25,642.50 = 39,318.50 = 1,64,112
Machinery 5.6 * 1,125 5.6 * 1,250 5.6 * 21,000
= 6,300 = 7,000 = 1,17,600
Calculation of cost using conventional methods
Particulars P Q R
Material 20 * 750 = 15,000 12 * 1,250 = 15,000 25 * 7,000 = 1,75,000
Labour 3 * 750 = 2,250 9 * 1250 = 11,250 6 * 7,000 = 42 000
Set up 341.90 * 75 341.90 * 115 341.90 * 480
= 25,642.50 = 39,318.50 = 1,64,112
Machinery 5.6 * 1,125 5.6 * 1,250 5.6 * 21,000
= 6,300 = 7,000 = 1,17,600
Material 818.125 * 12 818.125 * 21 818.125 * 87
handling =9,187.50 =17,180.63 =71.176.88
Calculation of cost using conventional methods
Particulars P Q R
Material 20 * 750 = 15,000 12 * 1,250 = 15,000 25 * 7,000 = 1,75,000
Labour 3 * 750 = 2,250 9 * 1250 = 11,250 6 * 7,000 = 42 000
Set up 341.90 * 75 341.90 * 115 341.90 * 480
= 25,642.50 = 39,318.50 = 1,64,112
Machinery 5.6 * 1,125 5.6 * 1,250 5.6 * 21,000
= 6,300 = 7,000 = 1,17,600
Material 818.125 * 12 818.125 * 21 818.125 * 87
handling =9,187.50 =17,180.63 =71.176.88
Inspection 196.35 *150 196.35 * 180 196.35 * 670
=29,452.5 =35,343 = 1,31,554.5
Calculation of cost using conventional methods
Particulars P Q R
Material 20 * 750 = 15,000 12 * 1,250 = 15,000 25 * 7,000 = 1,75,000
Labour 3 * 750 = 2,250 9 * 1250 = 11,250 6 * 7,000 = 42 000
Set up 341.90 * 75 341.90 * 115 341.90 * 480
= 25,642.50 = 39,318.50 = 1,64,112
Machinery 5.6 * 1,125 5.6 * 1,250 5.6 * 21,000
= 6,300 = 7,000 = 1,17,600
Material 818.125 * 12 818.125 * 21 818.125 * 87
handling =9,187.50 =17,180.63 =71.176.88
Inspection 196.35 *150 196.35 * 180 196.35 * 670
=29,452.5 =35,343 = 1,31,554.5
87,922.50 1,25,092.13 7,01,443.38
Calculation of cost using conventional methods
Particulars P Q R
Material 20 * 750 = 15,000 12 * 1,250 = 15,000 25 * 7,000 = 1,75,000
Labour 3 * 750 = 2,250 9 * 1250 = 11,250 6 * 7,000 = 42 000
Set up 341.90 * 75 341.90 * 115 341.90 * 480
= 25,642.50 = 39,318.50 = 1,64,112
Machinery 5.6 * 1,125 5.6 * 1,250 5.6 * 21,000
= 6,300 = 7,000 = 1,17,600
Material 818.125 * 12 818.125 * 21 818.125 * 87
handling =9,187.50 =17,180.63 =71.176.88
Inspection 196.35 *150 196.35 * 180 196.35 * 670
=29,452.5 =35,343 = 1,31,554.5
87,922.50 1,25,092.13 7,01,443.38
Per unit cost 117.23 100.08 10.20
Particulars Traditional costing
P 65
Q 49
R 115
Particulars Traditional costing ABC costing
P 65 117.23
Q 49 100.03
R 115 100.20
Particulars Traditional costing ABC costing Difference
P 65 117.23 52.23
Q 49 100.03 51.03
R 115 100.20 14.80
Particulars Traditional costing ABC costing Difference
P 65 117.23 52.23
Q 49 100.03 51.03
R 115 100.20 14.80

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.
Q.No 5 Fasteners Ltd. Produces and sells four products. A, B, C and D. Details of
the four products and relevant information are given below for week ended 28th
April, 2007.
 
Products A B C D
Output (units) 120 100 80 120
Cost per unit: (Rs.)
Direct Material 40 50 30 60
Direct Labour 28 21 14 21
Machine hours (per unit) 4 3 2 3
 
The four products are similar and are usually produced in production runs of 20
units and sold in batches of 10 units.
The Production overheads during the period are as follows:
Rs.
Factory works expenses 20,860
Set up costs 10,500
Stores receiving 7,200
Inspection/Quality control 4,200
Material handling and dispatch 9,240
 
The production overhead is currently absorbed by using a Machine-hour rate and
the company wishes to introduce Activity Based Costing (ABC) system and has
identified major cost pools for production overheads and their associated cost
drivers.
Information in these activity cost pools and their drivers is given below:
Activity Cost Pool Cost Drivers
Factory Works Expenses Machine-hours
Set up Costs Number of production runs
Stores receiving Requisitions raised
Inspection/Quality Control Number of production runs
Material handling & dispatch Number of orders executed
The number of requisitions raised on the stores was 20 for each product and
number of orders executed was 42, each order being for a batch of 10 of a product.
Requirements:
(i) Total cost of each product assuming the absorption of overhead on Machine-
hour basis.
(ii)Total cost of each product assuming the absorption of overhead by using Activity
Based Costing.
Working notes :
A B C D
Output 120 100 80 120
Working notes :
A B C D
Output 120 100 80 120
Machine 120 * 4 = 100 * 3 = 80 * 2 = 160 120 * 3 = 1,300
hours 480 300 360
Working notes :
A B C D
Output 120 100 80 120
Machine 120 * 4 = 100 * 3 = 80 * 2 = 160 120 * 3 = 1,300
hours 480 300 360
Production 120 / 20 = 6 100 / 20 = 5 80 / 20 = 4 120 / 20 = 6 21
run
Working notes :
A B C D
Output 120 100 80 120
Machine 120 * 4 = 100 * 3 = 80 * 2 = 160 120 * 3 = 1,300
hours 480 300 360
Production 120 / 20 = 6 100 / 20 = 5 80 / 20 = 4 120 / 20 = 6 21
run
Order 120 / 10 = 100 / 10 = 80 / 10 = 8 120 / 10 = 42
executed 12 10 12
Working notes :
A B C D
Output 120 100 80 120
Machine 120 * 4 = 100 * 3 = 80 * 2 = 160 120 * 3 = 1,300
hours 480 300 360
Production 120 / 20 = 6 100 / 20 = 5 80 / 20 = 4 120 / 20 = 6 21
run
Order 120 / 10 = 100 / 10 = 80 / 10 = 8 120 / 10 = 42
executed 12 10 12
Requisition 20 20 20 20 80
Working notes :
A B C D
Output 120 100 80 120
Machine 120 * 4 = 100 * 3 = 80 * 2 = 160 120 * 3 = 1,300
hours 480 300 360
Production 120 / 20 = 6 100 / 20 = 5 80 / 20 = 4 120 / 20 = 6 21
run
Order 120 / 10 = 100 / 10 = 80 / 10 = 8 120 / 10 = 42
executed 12 10 12
Requisition 20 20 20 20 80

Total overheads = 52,000

Machine hour rate (traditional method) = 52,000 / 1,300 = 40
 Calculation of cost using conventional methods
Particulars A B C D
Material 40 50 30 60
 Calculation of cost using conventional methods
Particulars A B C D
Material 40 50 30 60
Labour 28 21 14 21
 Calculation of cost using conventional methods
Particulars A B C D
Material 40 50 30 60
Labour 28 21 14 21
Overheads 4 * 40 = 160 3 * 40 = 120 2 * 40 = 80 3 * 40 = 120
228 191 124 201
 Calculation of cost driver rate
Cost pool
Factory
expenses
Set up costs
Stores
receiving
Material
handling
Dispatch
 Calculation of cost driver rate
Cost pool Amount
Factory 20,860
expenses
Set up costs 10,500
Stores 7,200
receiving
Material 4,200
handling
Dispatch 9,240
 Calculation of cost driver rate
Cost pool Amount Cost driver
Factory 20,860 Machine hour
expenses
Set up costs 10,500 Production run
Stores 7,200 Requisition raised
receiving
Material 4,200 Production run
handling
Dispatch 9,240 Order executed
 Calculation of cost driver rate
Cost pool Amount Cost driver Volume of
cost driver
Factory 20,860 Machine hour 1,300
expenses
Set up costs 10,500 Production run 21
Stores 7,200 Requisition raised 80
receiving
Material 4,200 Production run 21
handling
Dispatch 9,240 Order executed 42
 Calculation of cost driver rate
Cost pool Amount Cost driver Volume of Rate
cost driver
Factory 20,860 Machine hour 1,300 16.04
expenses
Set up costs 10,500 Production run 21 500
Stores 7,200 Requisition raised 80 90
receiving
Material 4,200 Production run 21 200
handling
Dispatch 9,240 Order executed 42 220
Calculation of cost using conventional methods
Particulars A B C D
Material 40 *120 = 4,800 50 * 100 = 5,000 30 * 80 = 2,400 60 * 120 = 7,200
Calculation of cost using conventional methods
Particulars A B C D
Material 40 *120 = 4,800 50 * 100 = 5,000 30 * 80 = 2,400 60 * 120 = 7,200
Labour 28 * 120 = 3,360 21 * 100 = 2,100 14 * 80 = 1,120 21 * 120 = 2,520
Calculation of cost using conventional methods
Particulars A B C D
Material 40 *120 = 4,800 50 * 100 = 5,000 30 * 80 = 2,400 60 * 120 = 7,200
Labour 28 * 120 = 3,360 21 * 100 = 2,100 14 * 80 = 1,120 21 * 120 = 2,520
Factory expenses 480 * 16.04 = 300 * 16.04 = 160 * 16.04 = 360 * 16.04 =
7,699.20 4,812 9784.40 5774.40
Calculation of cost using conventional methods
Particulars A B C D
Material 40 *120 = 4,800 50 * 100 = 5,000 30 * 80 = 2,400 60 * 120 = 7,200
Labour 28 * 120 = 3,360 21 * 100 = 2,100 14 * 80 = 1,120 21 * 120 = 2,520
Factory expenses 480 * 16.04 = 300 * 16.04 = 160 * 16.04 = 360 * 16.04 =
7,699.20 4,812 9784.40 5774.40

Set up costs 6 * 500 = 3,000 5 * 500 = 2,500 4 * 500 = 2,000 6 * 500 = 3,000
Calculation of cost using conventional methods
Particulars A B C D
Material 40 *120 = 4,800 50 * 100 = 5,000 30 * 80 = 2,400 60 * 120 = 7,200
Labour 28 * 120 = 3,360 21 * 100 = 2,100 14 * 80 = 1,120 21 * 120 = 2,520
Factory expenses 480 * 16.04 = 300 * 16.04 = 160 * 16.04 = 360 * 16.04 =
7,699.20 4,812 9784.40 5774.40

Set up costs 6 * 500 = 3,000 5 * 500 = 2,500 4 * 500 = 2,000 6 * 500 = 3,000
Stores receiving 20 * 90 = 1,800 20 * 90 = 1,800 20 * 90 = 1,800 20 * 90 = 1,800
Calculation of cost using conventional methods
Particulars A B C D
Material 40 *120 = 4,800 50 * 100 = 5,000 30 * 80 = 2,400 60 * 120 = 7,200
Labour 28 * 120 = 3,360 21 * 100 = 2,100 14 * 80 = 1,120 21 * 120 = 2,520
Factory expenses 480 * 16.04 = 300 * 16.04 = 160 * 16.04 = 360 * 16.04 =
7,699.20 4,812 9784.40 5774.40

Set up costs 6 * 500 = 3,000 5 * 500 = 2,500 4 * 500 = 2,000 6 * 500 = 3,000
Stores receiving 20 * 90 = 1,800 20 * 90 = 1,800 20 * 90 = 1,800 20 * 90 = 1,800
Material handling 6 * 200 = 1,200 5 * 200 = 1,000 4 * 200 = 800 6 * 200 = 1,200
Calculation of cost using conventional methods
Particulars A B C D
Material 40 *120 = 4,800 50 * 100 = 5,000 30 * 80 = 2,400 60 * 120 = 7,200
Labour 28 * 120 = 3,360 21 * 100 = 2,100 14 * 80 = 1,120 21 * 120 = 2,520
Factory expenses 480 * 16.04 = 300 * 16.04 = 160 * 16.04 = 360 * 16.04 =
7,699.20 4,812 9784.40 5774.40

Set up costs 6 * 500 = 3,000 5 * 500 = 2,500 4 * 500 = 2,000 6 * 500 = 3,000
Stores receiving 20 * 90 = 1,800 20 * 90 = 1,800 20 * 90 = 1,800 20 * 90 = 1,800
Material handling 6 * 200 = 1,200 5 * 200 = 1,000 4 * 200 = 800 6 * 200 = 1,200
Dispatch 12 * 220 = 2,640 10 * 220 = 2,220 8 * 220 = 1,760 12 * 220 = 2,640
Calculation of cost using conventional methods
Particulars A B C D
Material 40 *120 = 4,800 50 * 100 = 5,000 30 * 80 = 2,400 60 * 120 = 7,200
Labour 28 * 120 = 3,360 21 * 100 = 2,100 14 * 80 = 1,120 21 * 120 = 2,520
Factory expenses 480 * 16.04 = 300 * 16.04 = 160 * 16.04 = 360 * 16.04 =
7,699.20 4,812 9784.40 5774.40

Set up costs 6 * 500 = 3,000 5 * 500 = 2,500 4 * 500 = 2,000 6 * 500 = 3,000
Stores receiving 20 * 90 = 1,800 20 * 90 = 1,800 20 * 90 = 1,800 20 * 90 = 1,800
Material handling 6 * 200 = 1,200 5 * 200 = 1,000 4 * 200 = 800 6 * 200 = 1,200
Dispatch 12 * 220 = 2,640 10 * 220 = 2,220 8 * 220 = 1,760 12 * 220 = 2,640
24,499.20 19,432 19,664.40 24,134.40
Rate 204.15 194.32 245.83 201.12
Q .No 6 ABC Ltd. is following Activity Based Costing. Budgeted overheads and cost
driver volumes are as follows:
Cost Pool Budgeted/Overheads Cost Driver Budgeted Volume
Rs.
Material Procurement 11.60 lakhs No. of orders 2,200
Material handling 5.00 lakhs No. of movement 1,360
Maintenance 19.40 lakhs Maintenance hour 16,800
Set-up 8.30 lakhs No. of set-ups 1,040
Quality Control 3.52 lakhs No. of inspection 1,800
Machinery 14.40 lakhs No. of machine hours 48,000
The company has produced a batch of 5,200 components, its material cost was Rs.
2.60 lakhs and labour cost Rs. 4.90 lakhs. Usage activities of the said batch are as
follows:
Material orders-52, Material movements-36, Maintenance hours-100, Set-ups-50,
Quality control Inspection-56 and Machine hours-3,600.
Calculate :
(i) Cost driver rates that are used for tracing appropriate amount of overheads to
the said batch.
(ii) The cost of batch of components.