Anju Limited has collected the following data for its two activities. It calculates activity cost rates based on cost driver capacity. Activity Cost…

CA Intermediate · Cost and Management Accounting · MTP · May 2024
Anju Limited has collected the following data for its two activities. It calculates activity cost rates based on cost driver capacity. Activity Cost Driver Capacity Cost (₹) Power Kilowatt hours 60,000 kilowatt hours 60,00,000 Quality Inspections Number of Inspections 10,000 Inspections 90,00,000 The company makes three products A, B and C. For the year ended March 31, 20XX, the following consumption of cost drivers was reported: Product Kilowatt hours Quality Inspections A 10,000 3,500 B 20,000 2,500 C 15,000 3,000 Required: PREPARE a statement showing cost allocation to each product from each activity.CALCULATE the cost of unused capacity for each activity.

Suggested Answer and Working Notes:

(i) Statement of cost allocation to each product from each activity A (₹) B (₹) C (₹) Total (₹) Power (Refer to working note) 10,00,000 20,00,000 15,00,000 45,00,000 Quality Inspections (Refer to working note) 31,50,000 22,50,000 27,00,000 81,00,000 Working Note: Rate per unit of cost driver: Power : (₹ 60,00,000 ÷ 60,000 kWh) = 100/kWhQuality Inspection: (₹ 90,00,000 ÷ 10,000 inspections) = 900 per inspection (ii) Calculation of cost of unused capacity for each activity: (₹) Power (₹ 60,00,000 - 45,00,000) 15,00,000 Quality Inspections (₹ 90,00,000 - 81,00,000) 9,00,000 Total cost of unused capacity 24,00,000

Topics: Activity Based Costing

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