A company uses Activity Based Costing. Machine Setup cost pool = ₹60,000; total setups = 60; Product A uses 20 setups. Quality Inspection cost pool = ₹40,000; total inspections = 50; Product A undergoes 10 inspections. What is the total overhead allocated to Product A?

Under Activity Based Costing, the overhead rate per cost driver is calculated for each activity pool. Machine Setup rate = ₹60,000 ÷ 60 = ₹1,000 per setup. Product A's Machine Setup cost = 20 × ₹1,000 = ₹20,000. Quality Inspection rate = ₹40,000 ÷ 50 = ₹800 per inspection. Product A's Inspection cost = 10 × ₹800 = ₹8,000. Total ABC overhead for Product A = ₹20,000 + ₹8,000 = ₹28,000. ABC provides more accurate cost allocation than traditional costing because it assigns costs based on the specific activities each product actually consumes, rather than a single volume-based absorption rate.