A consultancy firm provides project management service in three sectors Technology, Healthcare and Education. The Project management service covers…

CA Intermediate · Cost and Management Accounting · PYQS · September 2025
A consultancy firm provides project management service in three sectors Technology, Healthcare and Education. The Project management service covers development and implementation of software for various MIS requirements of its clients. The fees charged per project is as follows: Technology:90,000Healthcare:1,20,000Education:1,10,000 The company uses Activity-Based Costing (ABC) to allocate its overhead costs. For the month of August 2025, the following informations are provided: Service Sector Number of Projects Software Development Hours Consulting Hours Number of Client Meetings Technology 20 projects 10,000 hours 6,400 hours 30 Healthcare 10 projects 7,000 hours 5,600 hours 20 Education 10 projects 5,000 hours 2,000 hours 40 Overhead Costs and Activities: Activity Total Cost (₹) Cost Driver Management of Projects 8,10,000 Number of projects Consulting Service Delivery 4,20,000 Consulting hours Client Interaction & Meetings 6,30,000 Number of client meetings Administration and Support 15,40,000 Software development hours You are required to: (i) Prepare a statement showing the total cost and per project cost of project management service for each service sector Technology, Healthcare and Education using Activity Based Costing Approach. (ii) Identify the most profitable sector based on profitability percentage on fees charged.

Suggested Answer and Working Notes:

(i) Statement Showing “Total cost and Cost per project - Activity Based Costing” Particulars Technology Healthcare Education Management of Project @20,250 per project (20,10,10) 4,05,000 2,02,500 2,02,500 Consulting Service Delivery @30 per hour (6,400, 5,600, 2,000) 1,92,000 1,68,000 60,000 Client Interaction and Meeting @7,000 per meeting (30,20,40) 2,10,000 1,40,000 2,80,000 Administration and Support @70 per hour (10,000, 7,000, 5,000) 7,00,000 4,90,000 3,50,000 Total Cost 15,07,000 10,00,500 8,92,500 Project 20 10 10 Cost per Project 75,350 1,00,050 89,250 Fee Charged 90,000 1,20,000 1,10,000 % of fee Charged (Cost/Fee) 119.44 119.94 123.25 OR Profit (Fee - Cost) 14,650 19,950 20,750 Profitability % (Profit/Fee) 16.28% 16.63% 18.86% (ii) Education is the most profitable sector. Working Note: Statement showing calculation of Cost Driver rate Activity Total Cost (₹) Driver Cost Basis Cost Driver (Units) Cost Driver Rate (₹) Management of Project 8,10,000 No of Projects 40 20,250 per project Consulting Service Delivery 4,20,000 Consulting Hours 14,000 30 per hour Client Interaction and Meeting 6,30,000 No of client meeting 90 7,000 per meeting Administration and Support 15,40,000 Software development Hours 22,000 70 per hour

Topics: Activity Based Costing

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