CA Intermediate · Cost and Management Accounting · Job Costing
Iyer Engineering absorbs factory overhead on direct labour hours. Budgeted overhead for the year was Rs 6,00,000 for 40,000 hours. Actual overhead was Rs 6,30,000 and actual hours were 39,000. Job K-5 used 250 hours. What overhead is charged to Job K-5, and what is the overall under/over absorption for the year?
Job K-5 is charged Rs 3,750 at the predetermined rate of Rs 15 per hour, and overhead is under-absorbed by Rs 45,000. Absorbed overhead is 39,000 hours times Rs 15, which is Rs 5,85,000, against actual overhead of Rs 6,30,000.
- ARs 3,750; under-absorbed Rs 45,000Correct
- BRs 3,750; under-absorbed Rs 15,000
- CRs 3,937.50; under-absorbed Rs 45,000
- DRs 3,750; over-absorbed Rs 45,000
Explanation
Rate = 6,00,000 / 40,000 = Rs 15 per hour. Job K-5 = 250 x 15 = Rs 3,750. Absorbed = 39,000 x 15 = Rs 5,85,000. Actual 6,30,000 - 5,85,000 = Rs 45,000 under-absorbed. Option B uses the budgeted total, ignoring the actual hours shortfall.
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