Cost and Management AccountingQuestion 5420 of 251
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3. Under an activity based costing system, what is the cost driver rate for machine set up costs?

Options

A` 280
B` 1.467
C` 6.85
D` 230
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Correct Answer

✅ Option A — ` 280

All Options:

  • A` 280 ✓
  • B` 1.467
  • C` 6.85
  • D` 230

Detailed Solution & Explanation

Under an Activity-Based Costing (ABC) system, the cost driver rate is determined by dividing the total cost of the activity pool by the total number of cost driver units:
Cost Driver Rate for Machine Setups=Total Machine Setup CostsTotal Number of Production Runs (Setups)\text{Cost Driver Rate for Machine Setups} = \frac{\text{Total Machine Setup Costs}}{\text{Total Number of Production Runs (Setups)}}
From the given data:
Total Machine Setup Costs=₹70,000\text{Total Machine Setup Costs} = \text{₹} 70,000
Total Number of Production Runs=250 runs\text{Total Number of Production Runs} = 250 \text{ runs}
Cost Driver Rate=₹70,000250=₹280 per run\text{Cost Driver Rate} = \frac{\text{₹} 70,000}{250} = \text{₹} 280 \text{ per run}
Hence, **Option A** is the correct answer.

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