CA Intermediate · Cost and Management Accounting · Job Costing
Rao Engineering absorbs factory overheads on machine hours. Budgeted overheads for the year were ₹7,20,000 for 24,000 machine hours. Actual overheads were ₹7,50,000 and actual machine hours were 24,500. What is the amount of overheads under-absorbed or over-absorbed?
Overheads are under-absorbed by ₹15,000. The predetermined rate is ₹30 per machine hour, so absorbed overhead on 24,500 hours is ₹7,35,000, which is less than the actual overhead of ₹7,50,000.
- AUnder-absorbed by ₹15,000Correct
- BOver-absorbed by ₹15,000
- CUnder-absorbed by ₹30,000
- DOver-absorbed by ₹ 0
Explanation
Rate = 7,20,000 / 24,000 = ₹30 per hour. Absorbed = 24,500 × 30 = ₹7,35,000. Actual = ₹7,50,000. Under-absorption = 7,50,000 − 7,35,000 = ₹15,000. Option ₹30,000 wrongly compares actual with budget.
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