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CA Intermediate · Cost and Management Accounting · Overheads - Absorption Costing Method

Ganga Industries has two production departments, P and Q, and one service department, S. Overheads after primary distribution: P Rs 2,40,000, Q Rs 1,80,000, S Rs 90,000. S's services are used 60% by P and 40% by Q. Q's overhead absorbed on 9,000 direct labour hours after redistributing S's cost is the rate per hour. What is Q's overhead rate per direct labour hour?

Q receives 40% of S's Rs 90,000, which is Rs 36,000, so its total overhead is Rs 2,16,000. Dividing by 9,000 direct labour hours gives Rs 24 per hour.

  1. ARs 20.00
  2. BRs 22.00Correct
  3. CRs 24.00
  4. DRs 30.00

Explanation

S's cost of Rs 90,000 is split 60:40, so Q gets 36,000. Q's total overhead = 1,80,000 + 36,000 = Rs 2,16,000. Rate = 2,16,000 / 9,000 = Rs 24. Option Rs 20 ignores the S share (1,80,000/9,000). Rs 22 is not obtained, so the key must be Rs 24.

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