CMA Intermediate · Cost Accounting · Overheads
Bharat Castings uses a machine hour rate to absorb overheads. Budgeted overheads were Rs 9,00,000 on 30,000 budgeted machine hours. Actual overheads were Rs 9,50,000 and actual machine hours were 32,000. What is the overhead under- or over-absorbed?
Overhead is over-absorbed by Rs 10,000. The machine hour rate is Rs 30, so 32,000 actual hours absorb Rs 9,60,000, which exceeds actual overhead of Rs 9,50,000 by Rs 10,000.
- AUnder-absorbed Rs 50,000
- BOver-absorbed Rs 10,000Correct
- CUnder-absorbed Rs 10,000
- DOver-absorbed Rs 50,000
Explanation
Rate = 9,00,000 / 30,000 = Rs 30 per machine hour. Absorbed = 32,000 x 30 = Rs 9,60,000. Actual overhead is Rs 9,50,000, so absorbed exceeds actual by Rs 10,000, which is over-absorption. Comparing actual with budget (Rs 50,000) ignores the actual hours worked.
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