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CMA Intermediate · Management Accounting · Forecasting, Budgeting and Budgetary Control

Verma Ltd budgets June production overhead of Rs 2,40,000, which includes depreciation of Rs 40,000 and amortisation of prepaid expenses of Rs 20,000 (both non-cash). Overheads are paid in the month incurred. Selling expenses are paid one month later; May's were Rs 45,000 and June's are Rs 50,000. What is the June cash outflow for these two items?

Remove the non-cash depreciation (Rs 40,000) and amortisation (Rs 20,000) from overhead to get Rs 1,80,000 cash overhead, then add May's selling expenses of Rs 45,000 paid in June. The June outflow is Rs 2,25,000.

  1. ARs 2,25,000Correct
  2. BRs 2,85,000
  3. CRs 2,30,000
  4. DRs 2,40,000

Explanation

Cash overhead = 2,40,000 - 40,000 - 20,000 = 1,80,000. Selling expense paid in June is May's Rs 45,000. Total = 2,25,000. Rs 2,30,000 wrongly pays June's selling expense and deducts only depreciation... in any case it is not the result of the stated timing.

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