The document provides cost and activity data for Parshwa Ltd, a garment manufacturer with four customers, and its owner wants to evaluate each customer's profitability potential. It also lists the annual outputs, machine hours, purchase orders, and setups for two products (A and B) of another company and overhead costs allocated traditionally and via activity-based costing. Finally, it provides distribution channel costs and corporate costs and asks to prepare an income statement for Fashion Garments using the data given.

1. PS (i)
Q1 Identifying activities and their costs.
Set up Rs 10,000
Machining Rs 40,000
Packaging Rs 20,000
Receiving Rs 30,000
Engineering Rs 10,000
Determine the cost drivers.
Q2 Parshwa ltd is a ready –made garment manufacturer. It has four
customers: two wholesale- channel customers and two retail –
channel customers:
 Vimal wholesalers
 Chopra brothers wholesale company
 Classic men’s store
 Design clothing store
Parshwa’s owner and CEO, Parshwa Shah, has developed the
following ABC system:
Activity Cost driver Rate in 2008
Order processing No. of purchase Rs 490
orders
Sales visits No. of customer Rs 2860
visits
Delivery –regular No. of regular Rs 600 per delivery
deliveries
Delivery – rushed No. of rushed Rs 1700 per delivery
deliveries
List selling price per suit is Rs 400 ,and average cost per suit is
Rs 220. Shah wants to evaluate the probability of each of the

2. four customers in 2007 to explore opportunities for increasing
the profitability of his company in 2008. The following data are
available for 2007.
Item Wholesale Retail customers
customers
Vimal Chopra Classic Design
Total number of orders 88 124 424 500
Total number of sale 16 24 44 40
visits
Regular deliveries 82 96 332 380
Rush deliveries 6 28 92 120
Average number of 800 400 60 50
-suits per order
Average selling price Rs 280 Rs 320 Rs 340 Rs 360
per unit
Allocate the costs by adopting proper cost and activity drivers.
R&L
Illustration 6.1
A company manufacturing two products furnishes the
following data for a year:
Product Annual Total Total Total
output machine number of number of
(units) hours purchase setups
orders
A 10,000 15,000 120 20
B 40,000 85,000 480 30

3. The annual overheads are:
Rs.
Volume- related activity costs : 4,50,000
Setup related costs :9,00,000
Purchase related costs :6,50,000
You are required to calculate the cost per unit of product A and
B based on :
(a) Traditional method of charging overheads
(b) Activity- based costing method.
1. Calculate the customer-level operating income in 2006.
2. What do you recommend Mr Tejpal Singh to do to increase
the company’s operating income in 2007?
3. Assume Fashion Garments distribution channel costs are Rs
17,50,000 for its wholesale customers and Rs 10,50,000 for
the retail customers. Also, assume that its corporate
sustaining costs are Rs 12,50,000. prepare the income
statement of Fashion Garments for 2006.