CMA Intermediate · Management Accounting · Activity Based Costing
Gokul Engineering absorbs factory overheads of ₹8,00,000 on direct labour hours under its traditional method. Total direct labour hours are 40,000. Product Alpha takes 2.5 direct labour hours per unit. What overhead per unit is charged to Alpha under the traditional method?
The overhead charged to Alpha is ₹50 per unit. The traditional rate is ₹8,00,000 divided by 40,000 labour hours, which is ₹20 per hour, and Alpha consumes 2.5 hours per unit, so 2.5 × ₹20 gives ₹50.
- A₹20
- B₹40
- C₹50Correct
- D₹125
Explanation
Traditional rate = ₹8,00,000 / 40,000 hours = ₹20 per direct labour hour. Overhead per unit of Alpha = 2.5 × ₹20 = ₹50. ₹40 results from using 2 hours instead of 2.5, and ₹20 is just the rate, not the cost per unit.
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