CA Intermediate · Cost and Management Accounting · Overheads - Absorption Costing Method
Kaveri Engineering 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 has a direct labour hour total of 9,000 hours. After reapportioning S's cost, what is Q's overhead rate per direct labour hour?
Q's overhead rate is Rs 24 per direct labour hour. Service department S's Rs 90,000 is shared 60:40, giving Q Rs 36,000, so Q's total is Rs 2,16,000, which divided by 9,000 hours gives Rs 24. Ignoring reapportionment gives Rs 20.
- ARs 20.00
- BRs 24.00Correct
- CRs 30.00
- DRs 26.00
Explanation
S's Rs 90,000 is split 60:40, so Q gets 36,000. Q's total = 1,80,000 + 36,000 = Rs 2,16,000. Rate = 2,16,000/9,000 = Rs 24. Rate of Rs 20 ignores the reapportionment of S.
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