Skip to content

CA Intermediate · Cost and Management Accounting · Overheads - Absorption Costing Method

Sharma Engineering has two production departments, P and Q, and one service department, S. Total overhead of the service department S is Rs 90,000, which is apportioned on the basis of machine hours of departments P and Q. Machine hours: P 3,000 and Q 1,500. Direct overhead of P is Rs 2,40,000. What is the total overhead of department P after apportioning S's cost (S is not charged by P or Q otherwise)?

Department P bears two-thirds of the service department cost because its machine hours are twice those of Q. Its share is Rs 60,000, which added to its own Rs 2,40,000 gives Rs 3,00,000.

  1. ARs 3,00,000
  2. BRs 3,30,000Correct
  3. CRs 2,70,000
  4. DRs 3,60,000

Explanation

Ratio of P:Q = 3,000:1,500 = 2:1. P's share = 90,000 x 2/3 = 60,000. Total for P = 2,40,000 + 60,000 = Rs 3,00,000. Hmm, this gives 3,00,000, so the correct option is Rs 3,00,000.

Did you get it right without looking?

One question tells you little. A timed set on Overheads - Absorption Costing Method shows your real accuracy, how long you take and where you lose marks.

Practise Overheads - Absorption Costing MethodFree diagnostic mock

More Overheads - Absorption Costing Method questions