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CMA Final · Strategic Cost Management · Uniform Costing and Inter-firm Comparison

A group of firms uses uniform costing and shares a common raw-material purchasing pool. Firm M's actual cost of capacity use shows: total fixed overheads ₹18,00,000, normal capacity 90,000 hours, actual hours 72,000. Under the uniform manual, overheads are absorbed at normal capacity and under-absorption is reported separately and not loaded to product cost. What is the overhead cost per hour used for comparison, and the under-absorbed amount?

The rate is fixed overheads divided by normal capacity: ₹18,00,000/90,000 = ₹20 per hour. Absorbed overhead on 72,000 actual hours is ₹14,40,000, leaving ₹3,60,000 under-absorbed, reported separately rather than added to product cost.

  1. A₹25 per hour; under-absorption ₹3,60,000
  2. B₹20 per hour; under-absorption ₹3,60,000Correct
  3. C₹20 per hour; under-absorption ₹18,00,000
  4. D₹25 per hour; under-absorption ₹4,50,000

Explanation

Absorption rate = 18,00,000/90,000 = ₹20 per hour. Absorbed = 72,000 x 20 = ₹14,40,000. Under-absorption = 18,00,000 - 14,40,000 = ₹3,60,000. The ₹25 rate comes from dividing by actual hours, which wrongly loads idle capacity into product cost.

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