Aurel commerce classesCost AccountingTYBAF

Q.1. MST 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 50,000 kilowatt hours Rs. 2,00,000
Quality Inspections Number of Inspections 10,000 inspections Rs. 3,00,000
The company makes three products M, S and T for the year ended March 31, 2014, the following consumption of
cost drivers was reported:
Product Kilowatt Hours Quality Inspections
M 10,000 3500
S 20,000 2500
T 15000 3000
Required : Compute the costs allocated to each product from each activity.
Q.2. Traditional Ltd. is a manufacturer of a range of goods. The cost structure of its different products is as follows:
Particulars Product A Product B Product C
Direct Material 50 40 40Rs./U
Direct Labour @ 30 40 50 Rs. /U
10Rs./hr.
Production 30 40 50 Rs./U
Overheads
Total Cost 110 120 140 Rs./U
Quantity Produced 10,000 20,000 30,000 units
Traditional Ltd. was absorbing overheads on the basis of direct labour hours. A newly appointed management
accountant has suggested that the company should introduce ABC system and has identified cost drivers and cost
pools as follows:
Activity Cost Pool Cost driver Associated Cost
Stores Receiving Purchase requisitions 2,96,000
Inspection No. of production runs 8,94,000
Despatch Orders Executed 2,10,000
Machine setup No. of setups 12,00,000
The following information is also supplied:
Details Product A Product B Product C
No. of setups 360 390 450
No. of orders Executed 180 270 300
No. of production runs 750 1050 1200
No. of purchase requisitions 300 450 500
You are required to calculate Activity based cost of all three products.
Q.3. Noodles Ltd. produce and sell four products P,Q,R and S. These products are similar and literally produce in
production run of ten units and sold in the batches of 5 units.
The production overheads during the period are as follows:
Particulars Amt (Rs.)
Factory work expenses 22500
Store material receiving cost 8000
Machine setup cost 12200
Quality control cost 4600
Material handling and dispatching cost 12600
Total cost 60,000
The cost driver overheads are as follows:
Particulars of cost Cost driver
Factory works Expenses Machine hours
Store Material Receiving Cost Requisition Raised
Machine set up cost Number of production run
Quality Control Cost Number of production run
Material Handling and Dispatching Cost Number of orders executed
Aurel commerce classesCost AccountingTYBAF

The number of requisition raised on the stores was 25 for each product and the number of orders executed was 96.
Each order was in a batch of 5 units. The production details of these products are as follows:
Particulars Product P Product Q Product R Product S
Production (in units) 100 110 120 150
Cost per unit:
Direct Material 30 40 35 45
Direct labour 36 30 20 40
Machine Hours(Hours per unit) 5 4 3 4
Calculate the cost driver rate.
Q.4.Polyhdron Company Ltd. manufactures 4 products viz., M,N, O and P using the same plant and machinery. The
following information relates to production period October 2014.
Particulars Product M Product N Product O Product P
Output (in units) 2880 2400 1920 2016
Cost per unit :
Direct material 84 90 80 96
Direct labour 20 18 14 16
Machine Hours required per unit 8 6 4 2
The 4 products are similar and are usually produced in the production run of 96 units per batch and are sold in the
batches of 48 units.
Currently the production overhead is being absorbed using Machine Hour Rate. The production overhead incurred
by the company during the period October 2014 is as follows:
Cost Amt (RS.)
Machine Department 2,52,000
Set up Cost 80,000
Store receiving 60,000
Inspection 40,000
Material Handling and Dispatch 10,368
During the period of October 2014 the following cost drivers are to be used for allocation of overhead cost
Cost Cost driver
Machine Department Machine hour rate
Set up cost Number of production run (in batches)
Store receiving Number of requisition raised
Inspection Number of production run
Material Handling and Dispatch Number of orders executed
It is also determined that Machine Department Cost should be apportioned among set – up store receiving and
inspection activity in the proportion of 4 : 3 : 2. The number of requisitions raised on the store are 100 for each
product. The total number of material handling and dispatch order executed during the period are 384 and each order
being for 48 units of product.