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

Sharma Textiles budgets production of 12,000 units for a month. Fixed overhead is Rs 1,80,000 and variable overhead is Rs 5 per unit. Using a flexible budget, what is the budgeted total overhead cost at 15,000 units of activity (fixed cost unchanged within the range)?

Budgeted overhead at 15,000 units is Rs 2,55,000. Variable overhead rises with activity to 15,000 x Rs 5 = Rs 75,000, while fixed overhead stays at Rs 1,80,000 within the relevant range, so the flexed total is the sum of the two.

  1. ARs 2,55,000Correct
  2. BRs 2,25,000
  3. CRs 2,40,000
  4. DRs 3,00,000

Explanation

Variable overhead at 15,000 units = 15,000 x 5 = Rs 75,000. Add fixed overhead Rs 1,80,000 to get Rs 2,55,000. Rs 2,25,000 wrongly uses 12,000 units' variable cost plus extra fixed amount; Rs 3,00,000 wrongly treats the total overhead per unit at 12,000 units (Rs 20) as fully variable.

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