Skip to content

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

Sundaram Foods Ltd. has two production departments, P and Q, and one service department, S. Overheads after primary distribution: P ₹2,40,000; Q ₹1,60,000; S ₹80,000. Service department S's cost is apportioned to P and Q in the ratio 3:1 (no service from P or Q to S). Direct labour hours in P are 12,000 and in Q are 8,000. What is the overhead absorption rate per direct labour hour for department Q?

The rate for department Q is ₹22.50 per direct labour hour. Service department S's ₹80,000 is shared 3:1, so Q receives ₹20,000, making its total ₹1,80,000. Dividing by 8,000 direct labour hours gives ₹22.50.

  1. A₹20.00
  2. B₹22.50Correct
  3. C₹25.00
  4. D₹21.00

Explanation

S's ₹80,000 is split 3:1, giving P ₹60,000 and Q ₹20,000. Q's total overhead = 1,60,000 + 20,000 = ₹1,80,000. Rate = 1,80,000 / 8,000 = ₹22.50. Using 1:1 would wrongly give ₹25.

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