CA Intermediate · Cost and Management Accounting · Job Costing
Verma Engineering completed Job K-9 with total cost of ₹2,40,000, including factory overheads absorbed at a predetermined rate of ₹40 per machine hour for 2,000 hours. Actual factory overheads for the year were ₹9,00,000 against 20,000 actual machine hours worked in total, while the budget was 22,500 hours. What was the overhead under- or over-absorption for the year?
Overheads are under-absorbed by ₹1,00,000. Absorbed overhead is actual hours 20,000 multiplied by ₹40, which is ₹8,00,000, while actual overhead incurred was ₹9,00,000. Since absorbed is less than incurred, the shortfall is under-absorption.
- AUnder-absorbed ₹1,00,000Correct
- BOver-absorbed ₹1,00,000
- CUnder-absorbed ₹1,80,000
- DOver-absorbed ₹1,80,000
Explanation
Absorbed = 20,000 × 40 = 8,00,000. Actual = 9,00,000. Under-absorbed = 1,00,000. Wrongly using budgeted hours gives 9,00,000 absorbed (nil), and the K-9 figures are not needed.
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