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CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control

Sharma Ltd has a flexible budget for overhead. At 8,000 units the total overhead is Rs 3,20,000 and at 10,000 units it is Rs 3,50,000. What would be the budgeted overhead at 11,000 units?

Budgeted overhead at 11,000 units is Rs 3,65,000. The change of Rs 30,000 over 2,000 units gives variable cost of Rs 15 per unit, leaving fixed overhead of Rs 2,00,000. Then 2,00,000 plus 11,000 times 15 equals Rs 3,65,000.

  1. ARs 3,65,000Correct
  2. BRs 3,85,000
  3. CRs 3,50,000
  4. DRs 4,40,000

Explanation

Variable cost per unit = (3,50,000 - 3,20,000) / 2,000 = Rs 15. Fixed overhead = 3,50,000 - 10,000 x 15 = Rs 2,00,000. At 11,000 units: 2,00,000 + 11,000 x 15 = Rs 3,65,000. Check at 8,000: 2,00,000 + 1,20,000 = 3,20,000. Rs 4,40,000 wrongly scales total overhead proportionally.

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