Question

The following information relates to Ali Manufacturing Company for the last period.
S.No. Cost Items Total Cost (Rs.)
1 Rent of Building 725,000
2 Depreciation of machinery 290,000
3 Fire Insurance 103,000
4 Power 590,000
5 Repair of Machinery 80,000
6 Air conditioning 63,000
7 Supervision 45,500
8 Cleaning 4,620
9 Lighting 130,000
10 Canteen 68,600
11 Hospital & Dispensary 176,400
Total 2,276,120
Products

A1 A2 A3
Machine Hours 4,800 4,200 3,600
Value of Machine 4,500,000 5,000,000 1,250,000
No. of Employees 140 105 140
Area (square Feet) 6,400 7,500 10,600
As evident from the data provided, this firm is engaged in the production of three products, A1,
A2 and A3. The associated indirect manufacturing costs along with information about potential
cost drivers is also made available. You are required to perform the following tasks.
Required:
a) Assign the cost driver to each cost item. Also justify your assignment.
b) Apportion costs to each product and show total indirect manufacturing cost chargeable
to each product.
c) Which cost driver would you recommend to be used as single driver, if the company
intends to employ conventional costing

Answer 1