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CMA Intermediate · Cost Accounting · Budget and Budgetary Control

Verma Ltd's budgeted overhead is Rs 1,50,000 at 60% capacity and Rs 1,70,000 at 80% capacity. Assuming the overhead is semi-variable, what is the budgeted overhead at 70% capacity?

The budgeted overhead at 70% capacity is Rs 1,60,000. The variable element is Rs 1,000 per 1% of capacity and fixed overhead is Rs 90,000, so 90,000 + 70 x 1,000 equals Rs 1,60,000, the midpoint of the two given levels.

  1. ARs 1,60,000Correct
  2. BRs 1,65,000
  3. CRs 1,55,000
  4. DRs 1,40,000

Explanation

Variable cost per 1% capacity = (1,70,000 - 1,50,000)/20 = Rs 1,000. Fixed = 1,50,000 - 60,000 = Rs 90,000. At 70%: 90,000 + 70,000 = Rs 1,60,000. Check: midpoint of 1,50,000 and 1,70,000 is 1,60,000. The other values do not follow the linear relation.

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