Skip to content

CA Intermediate · Cost and Management Accounting · Job Costing

Surya Printers uses a predetermined overhead rate based on machine hours. Budgeted overheads were Rs 9,60,000 for 12,000 machine hours. Actual overheads were Rs 10,10,000 and actual machine hours were 12,500. Overheads for the period were therefore:

Overheads were under-absorbed by Rs 10,000. The rate is Rs 80 per machine hour, so absorbed overhead is 12,500 hours times 80, or Rs 10,00,000. Actual overhead was Rs 10,10,000, so absorption fell short by Rs 10,000.

  1. AUnder-absorbed by Rs 10,000Correct
  2. BOver-absorbed by Rs 10,000
  3. CUnder-absorbed by Rs 50,000
  4. DOver-absorbed by Rs 40,000

Explanation

Rate = 9,60,000 / 12,000 = Rs 80 per machine hour. Absorbed = 12,500 x 80 = 10,00,000. Actual = 10,10,000. Absorbed is less than actual by 10,000, so under-absorbed. Comparing with budget (10,000 hours difference confusion) or using budget overhead gives wrong answers.

Did you get it right without looking?

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

Practise Job CostingFree diagnostic mock

More Job Costing questions