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CMA Intermediate · Cost Accounting · Standard Costing and Variance Analysis

Budgeted fixed overhead of Rao Components for a month is ₹4,80,000 and budgeted output is 12,000 units, requiring 24,000 standard machine hours. The standard for one unit of product is 2 machine hours. Actual output was 11,000 units. Considering standard fixed overhead absorbed on actual output and the standard rate per machine hour, which pair is correct?

The standard rate is ₹20 per machine hour and the absorbed overhead is ₹4,40,000. Budgeted overhead of ₹4,80,000 divided by 24,000 hours gives ₹20, and actual output of 11,000 units at 2 standard hours each gives 22,000 hours.

  1. ARate ₹20 per hour; absorbed ₹4,40,000Correct
  2. BRate ₹40 per hour; absorbed ₹4,40,000
  3. CRate ₹20 per hour; absorbed ₹4,80,000
  4. DRate ₹40 per hour; absorbed ₹4,80,000

Explanation

Rate per hour = 4,80,000/24,000 = ₹20. Standard hours for actual output = 11,000 x 2 = 22,000. Absorbed = 22,000 x 20 = ₹4,40,000. Checking by unit: rate per unit ₹40 x 11,000 = ₹4,40,000. ₹40 is the rate per unit, not per hour, and ₹4,80,000 is the budget figure.

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