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CMA Intermediate · Cost Accounting · Cost Accounting Standards (CAS 1 to CAS 24)

Anand Engineering budgeted production overheads of Rs 6,00,000 for 30,000 machine hours. Normal capacity is 30,000 hours. Actual overheads were Rs 6,30,000 and actual hours 28,000. Under CAS 3 style absorption using budgeted rate, what is the under-absorbed overhead?

The budgeted rate is Rs 20 per machine hour. Absorbed overhead on 28,000 actual hours is Rs 5,60,000. Actual overhead was Rs 6,30,000, so overhead is under-absorbed by Rs 70,000. Comparing with the budget alone gives only Rs 30,000, which ignores the volume shortfall.

  1. ARs 70,000Correct
  2. BRs 30,000
  3. CRs 40,000
  4. DRs 1,00,000

Explanation

Rate = 6,00,000/30,000 = Rs 20 per hour. Absorbed = 28,000 x 20 = Rs 5,60,000. Actual Rs 6,30,000 minus absorbed Rs 5,60,000 = Rs 70,000 under-absorbed. Rs 30,000 ignores the volume shortfall and compares only actual with budget.

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