CA Intermediate · Cost and Management Accounting · Job Costing
Kapoor Engineering absorbs factory overhead at a predetermined rate of 150% of direct wages. During the year, direct wages were ₹8,00,000 and actual factory overhead was ₹12,70,000. Which statement is correct?
Absorbed overhead is 150% of ₹8,00,000, which is ₹12,00,000. Actual overhead of ₹12,70,000 is higher, so ₹70,000 of overhead has not been recovered through jobs. This is under-absorption of ₹70,000, not over-absorption.
- AOverhead was under-absorbed by ₹70,000Correct
- BOverhead was over-absorbed by ₹70,000
- COverhead was under-absorbed by ₹1,30,000
- DOverhead was fully absorbed
Explanation
Absorbed overhead = 150% x 8,00,000 = 12,00,000. Actual = 12,70,000. Actual exceeds absorbed by 70,000, so overhead is under-absorbed by ₹70,000. Over-absorption would arise only if absorbed exceeded actual.
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