The following budgeted information relates to Pinku Ltd. for the year 2024: Products A B C Production and Sales (units) 1,00,000 80,000 60,000…

CA Intermediate · Cost and Management Accounting · MTP · May 2024
The following budgeted information relates to Pinku Ltd. for the year 2024: Products A B C Production and Sales (units) 1,00,000 80,000 60,000 Selling price per unit (₹) 90 180 140 Direct cost per unit (₹) 50 90 95 Machine department (machine hours per unit) Hours 3 Hours 4 Hours 5 Assembly department (direct labour hours per unit) 6 4 3 The estimated overhead expenses for the year 2024 will be as below: Machine Department - 73,60,000Assembly Department - 55,00,000 Overhead expenses are apportioned to the products on the following basis: Machine Department: On the basis of machine hoursAssembly Department: On the basis of labour hours After a detailed study of the activities the following cost pools and their respective cost drivers are found: Cost Pool Amount (₹) Cost Driver Quantity Machining services 64,40,000 Machine hours 9,20,000 hours Assembly services 44,00,000 Direct labour hours 11,00,000 hours Set-up costs 9,00,000 Machine set-ups 9,000 set-ups Order processing 7,20,000 Customer orders 7,200 orders Purchasing 4,00,000 Purchase orders 800 orders As per an estimate the activities will be used by the three products: Products A B C Machine set-ups 4,500 3,000 1,500 Customer orders 2,200 2,400 2,600 Purchase orders 300 350 150 Prepare a product-wise profit statement using Activity-based method.

Suggested Answer and Working Notes:

Profit Statement using Activity based costing (ABC) method: Particulars A B C Total A. Sales Quantity 1,00,000 80,000 60,000 B. Selling price per unit (₹) 90 180 140 C. Sales Value (₹) [A×B] 90,00,000 1,44,00,000 84,00,000 3,18,00,000 D. Direct cost per unit (₹) 50 90 95 E. Direct Cost (₹) [A×D] 50,00,000 72,00,000 57,00,000 1,79,00,000 F. Overheads: (Refer working note-3) (i) Machining services (₹) 21,00,000 22,40,000 21,00,000 64,40,000 (ii) Assembly services (₹) 24,00,000 12,80,000 7,20,000 44,00,000 (iii) Set-up costs (₹) 4,50,000 3,00,000 1,50,000 9,00,000 (iv) Order processing (₹) 2,20,000 2,40,000 2,60,000 7,20,000 (v) Purchasing (₹) 1,50,000 1,75,000 75,000 4,00,000 G. Total Cost (₹) [E+F] 1,03,20,000 1,14,35,000 90,05,000 3,07,60,000 H. Profit (₹) (C-G) (13,20,000) 29,65,000 (6,05,000) 10,40,000 Working Notes: 1. Calculation of Machine Hours and Labour Hours for each product: Products Total A. Production (units) 1,00,000 80,000 60,000 B. Machine hours per unit 3 4 5 C. Total Machine hours [A×B] 3,00,000 3,20,000 3,00,000 9,20,000 D. Rate per hour (₹) 8 8 8 E. Machine Dept. cost [C×D] 24,00,000 25,60,000 24,00,000 73,60,000 F. Labour hours per unit 6 4 3 G. Total labour hours [A×F] 6,00,000 3,20,000 1,80,000 11,00,000 H. Rate per hour (₹) 5 5 5 I. Assembly Dept. cost [G×H] 30,00,000 16,00,000 9,00,000 55,00,000 Machine hour rate = 73,60,000 / 9,20,000 hours = 8 Labour hour rate = 55,00,000 / 11,00,000 hours = 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 Total A. Machining hours (Refer Working note-1) 3,00,000 3,20,000 3,00,000 9,20,000 B. Machine hour rate (₹) (Refer Working note-2) 7 7 7 C. Machining services cost (₹) [A×B] 21,00,000 22,40,000 21,00,000 64,40,000 D. Labour hours (Refer Working note-1) 6,00,000 3,20,000 1,80,000 11,00,000 E. Labour hour rate (₹) (Refer Working note-2) 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 (₹) (Refer Working note-2) 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 (₹) (Refer Working note-2) 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 (₹) (Refer Working note-2) 500 500 500 O. Purchasing cost (₹) [M×N] 1,50,000 1,75,000 75,000 4,00,000

Topics: Activity Based Costing

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic