Question 3 (a) Meri Chai Teri Chai Ltd., is engaged in manufacturing three products: - Ginger Chai - Masala Chai - Saffron Chai It calculates activ...

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Question 3 (a) Meri Chai Teri Chai Ltd., is engaged in manufacturing three products: - Ginger Chai - Masala Chai - Saffron Chai It calculates activity cost rates based on cost driver capacity. Activity Cost driver Capacity Cost () Machine Setup Number of setups 64 7,68,000 COST AND MANAGEMENT ACCOUNTING Machine Processing Machine hours 1,40,000 7,00,000 Quality inspection Number of inspections 544 6,80,000 Packaging Number of packings 600 7,20,000 For the year ended 31st March 2025, the following consumption of cost drivers was reported: Product Number of setups Machine hours Number of inspections Number of packings Ginger Chai 21 45,000 190 190 Masala Chai 22 50,000 204 250 Saffron Chai 17 40,000 150 150 Required: (i) Compute the costs allocated to each product from each activity on the basis of Activity- Based Costing method. (ii) Calculate the cost of unused capacity for each activity. (8 Marks) (b) Max Cinemas has three types of seats – Classic, Prime & Recliner where the total capacity is 306 seats, which are divided in the ratio of 12: 4: 1 respectively. The ticket price of Prime is twice of Classic ticket price and that of Recliner is thrice of Prime ticket price. Following information is given: Types of seats Occupancy percentage Classic 75% Prime 50% Recliner 50% On a daily basis, 4 movie shows are run throughout the year. The total cost per day is estimated to be 77,760. Assume 25% profit on total revenue. Required: (i) Calculate Equivalent Classic seats per day. (ii) Calculate Ticket prices of all three types of seats. (6 Marks)

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Answer Solution: (a) Working Note: Calculation of Cost Driver Rates | Activity | Activity Cost (₹) | Cost Driver Basis | Cost Driver Volume (Units) | Cost Driver Rate (₹) | | :--- | :---: | :--- | :---: | :---: | | Setup | 7,68,000 | Number of setups | 64 | 12,000 per setup | | Processing | 7,00,000 | Machine Hours | 1,40,000 | 5 per machine hour | | Inspection | 6,80,000 | Number of inspections | 544 | 1,250 per inspection | | Packaging | 7,20,000 | Number of packings | 600 | 1,200 per packing | (a) (i) Computation of Cost Allocated to each Product (ABC) | Activity / Cost Pool | Ginger Chai (₹) | Masala Chai (₹) | Saffron Chai (₹) | | :--- | :---: | :---: | :---: | | Setup Costs (@ ₹12,000/setup) | 2,52,000 | 2,64,000 | 2,04,000 | | Machine Processing Costs (@ ₹5/hour) | 2,25,000 | 2,50,000 | 2,00,000 | | Inspection Costs (@ ₹1,250/inspection) | 2,37,500 | 2,55,000 | 1,87,500 | | Packaging Costs (@ ₹1,200/packing) | 2,28,000 | 3,00,000 | 1,80,000 | | Total Costs | 9,42,500 | 10,69,000 | 7,71,500 | (a) (ii) Computation of Cost of Unused Capacity for each Activity | Activity | Unused Capacity | Unused Cost (₹) | | :--- | :---: | :---: | | Setup | 4 setups | 48,000 | | Machine Processing | 5,000 machine hours | 25,000 | | Inspection | Nil | - | | Packaging | 10 packings | 12,000 | | Total Unused Capacity Cost | | 85,000 | (b) Ticket Prices for Multiplex (Cinema Seats) 1. Total Equivalent Classic Seats per day: | Seat Type | Occupied Seats per day | Weight / Ratio | Equivalent Classic Seats per day | | :--- | :---: | :---: | :---: | | Classic | 648 (216 seats × 75% × 4 shows) | 1 | 648 | | Prime | 144 (72 seats × 50% × 4 shows) | 2 | 288 | | Recliner | 36 (18 seats × 50% × 4 shows) | 6 | 216 | | Total | | | 1,152 | 2. Calculation of Ticket Prices: - Total cost per day = ₹77,760 - Desired Profit Margin = 25% on Total Revenue (i.e. cost is 75% of revenue): Total Revenue per day = ₹77,760/0.75 = ₹1,03,680 Ticket Price for Classic Seat = ₹1,03,680/1,152 seats = ₹90 per show - Ticket price per show for Prime Seat = ₹90 × 2 = ₹180 - Ticket price per show for Recliner Seat = ₹90 × 6 = ₹540

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