CMA Intermediate · Cost Accounting · Overheads
In a Pune factory, a department's overheads are Rs 4,80,000. Its direct wages are Rs 3,20,000 and prime cost is Rs 8,00,000. A job has prime cost of Rs 25,000 and direct wages of Rs 10,000. If overheads are absorbed as a percentage of prime cost, what overhead is charged to the job?
The overhead charged is Rs 15,000. The prime cost percentage rate is Rs 4,80,000 divided by Rs 8,00,000, which is 60 percent, and applying it to the job's prime cost of Rs 25,000 gives Rs 15,000.
- ARs 15,000Correct
- BRs 12,500
- CRs 22,500
- DRs 10,000
Explanation
Prime cost percentage rate = 4,80,000 / 8,00,000 x 100 = 60%. Overhead on the job = 60% of 25,000 = Rs 15,000. Using the direct wages base (150% of Rs 10,000) would give Rs 15,000 coincidentally only for wages, so the prime cost base must be checked; here 60% x 10,000 = Rs 6,000 would be the wrong base mix.
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